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I AGREE
25 Jan 2011
Approximately $600 million of rated debt affected
New York, January 25, 2011 -- Moody's Investors Service has assigned a Ba2 Corporate Family Rating
(CFR) to Rovi Corporation ("Rovi" or the "Company"),
and Ba1 ratings to the Company's $600 million of proposed
credit facilities consisting of two tranches of term loans with 5 and
7 year maturities. Rovi's two wholly-owned subsidiaries,
Rovi Solutions Corporation and Rovi Guides, Inc., are
expected to be co-borrowers under the proposed credit facilities
which will be guaranteed by Rovi Corporation. The proceeds from
the term loan offering will be used for general corporate purposes.
Separately, Rovi expects to complete the purchase of Sonic Solutions
for approximately $764 million in cash and stock during the first
quarter of 2011. As part of the rating action, Moody's
also assigned an SGL-1 short-term rating to the Company.
The outlook for ratings is stable.
Moody's assigned the following ratings:
Issuer: Rovi Corporation
.... Corporate Family Rating -- Ba2
.... Probability of Default Rating --
Ba2
.... Senior Secured Bank Credit Facilities
(Rovi Solutions Corporation and Rovi Guides, Inc.,
as co-borrowers) -- Ba1, LGD2, 28 %
....Outlook -- Stable
. Speculative Grade Liquidity -- SGL-1
RATINGS RATIONALE
The Ba2 CFR reflects the strong market position of Rovi's interactive
program guides (IPG) offerings underpinned by its broad portfolio of patents
and the Company's large recurring revenues generated from licensing
of IPG patents and copy protection technologies. Rovi's high
EBITDA margins coupled with good EBITDA-to-free cash flow
conversion enable the Company to generate strong free cash flows.
The rating is supported by management's commitment to reduce debt-to-EBITDA
leverage to less than 3.0x (total debt to Company's adjusted
EBITDA) within a year after the close of Sonic acquisition, Rovi's
very good liquidity, and successful business execution in shifting
the Company's focus from a mature analog copy protection market
to a rapidly growing market for digital media technology solutions.
The rating benefits from favorable end-market trends, including
an expanding customer base of digital TV subscribers resulting from analog-to-digital
TV conversion, and the growth in Internet-enabled media devices
on which search and discovery features could enhance viewers' experiences
and add-on services could be provided. Moody's believes
that Rovi is favorably positioned to grow revenues leveraging its portfolio
of intellectual property and a combination of products in guidance,
metadata and content security.
However, the rating is constrained by Rovi's moderate scale
and debt-to-EBITDA leverage, and the potential for
acquisitions, which Moody's believes will remain an integral
part of the Company' strategy to expand its technology and product
portfolio. The rating also considers Rovi's eventual challenges
to maintain a commercially relevant patent portfolio as important patents
expire. Additionally, in Moody's opinion, rapidly
evolving technology and business models for distribution of content will
provide both new opportunities and a broad set of competitive challenges.
Moody's believes that as Rovi pursues significant advertising revenue
opportunities (not presently factored into our current projections),
its business risk could increase with growing exposure to a deeply cyclical
and intensely competitive market for advertising display. Currently
Rovi's key competitors include its customers who develop their own
guide product by licensing Rovi's intellectual property, as
well as other guide product providers. Rovi could face growing
challenges in the long term from its customers who may develop their own
user interfaces by designing around Rovi's patents in order to capture
a larger share of advertising revenues.
The stable rating outlook incorporates Moody's expectation that
Rovi's leverage would decline to less than 3.0x by mid-2012,
driven by strong organic revenue and EBITDA growth, and debt reduction.
Moody's expects the Company's share repurchases and acquisition
strategies to remain consistent with its management's commitment
to maintain a solid liquidity profile and a moderately levered balance
sheet.
Moody's assigned a Ba1 rating with a loss-given default assessment
of LGD2 (28%) to Rovi's proposed senior secured credit facilities
reflecting the lenders' first priority security interest in the
collateral pool and realization proceeds, and the presence of a
meaningful layer of effectively junior debt comprised of senior convertible
notes in the capital structure.
The SGL-1 liquidity rating mainly considers Rovi's strong
cash balances, including domestically held cash, the expectations
of strong free cash flow generation over the next 12-to-18
months, and modest levels of scheduled debt repayment requirements
over this period. The Company principally relies on its cash and
cash flow generation for liquidity requirements and does not presently
maintain a revolving credit facility.
What could change rating - Up
Moody's could raise Rovi's outlook or ratings if the Company's
operating performance remains strong and management commits to maintaining
a more conservative and stable fiscal policy. Specifically,
Rovi's ratings could be raised if the Company sustains debt-to-EBITDA
leverage of less than 2.0x (Moody's adjusted), while
continuing to pursue revenue growth opportunities to keep pace with the
rapidly changing industry, without dramatic impact on the Company's
credit profile.
What could change rating - Down
Rovi's ratings could be downgraded if the Company's debt-to-EBITDA
leverage remains above 3.0x (about 3.3x Moody's adjusted
total debt/EBITDA) by mid-2012. In addition, a deterioration
of Rovi's liquidity, which is mainly comprised of cash balance
and free cash flows, could trigger a rating downgrade. Downward
rating pressure could also develop if the Company's market position
is undermined as a result of declining commercial relevance of its patents,
if competitors successfully challenge Rovi's intellectual property rights,
or if the Company loses a key service provider or CE manufacturer relationship,
which results in material revenue losses.
The principal methodologies used in this rating were Global Software Industry
published in May 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in Santa Clara, California, Rovi Corporation
provides integration solutions for digital media entertainment,
primarily to service providers and consumer electronics manufacturers.
The Company has a broad patent portfolio spanning display of and interaction
with TV program guides and video copy protection technology. Rovi
reported revenues of $542 million in the LTM 3Q 2010 period.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Raj Joshi
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Ba2 CFR to Rovi; Outlook is stable
No Related Data.
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