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Rating Action:

Moody's assigns Ba2 to Cardtronics' new senior secured loan, downgrades unsecured to B2; affirms Ba3 CFR; outlook stable

17 Jun 2020

New York, June 17, 2020 -- Moody's Investors Service, ("Moody's") assigned a Ba2 rating to the proposed first lien term loan issued by Cardtronics, Inc.'s ("Cardtronics") subsidiary Cardtronics USA, Inc. ("Cardtronics USA"), and downgraded its ratings on the company's 5.50% $300 million senior unsecured notes to B2 from B1. As part of the rating action, Moody's also affirmed Cardtronics' Ba3 corporate family rating ("CFR") and Ba3-PD probability of default rating ("PDR"). Concurrently, Moody's upgraded the company's speculative grade liquidity ("SGL") rating to SGL-1 from SGL-2. The rating action reflects the pro forma impact of Cardtronics' planned repayment of existing revolver borrowings with proceeds from the proposed $500 million term loan and Moody's expectation that the company will utilize existing cash on its balance sheet to fund the repayment of the maturing 1.00% convertible senior notes in December 2020. The downgrade of the 5.50% notes reflects their reduced recovery prospects given the increased amount of priority secured debt which is situated ahead of these securities in the pro forma debt structure. The outlook is stable.

Affirmations:

..Issuer: Cardtronics, Inc.

.... Corporate Family Rating, Affirmed Ba3

.... Probability of Default Rating, Affirmed Ba3-PD

Upgrades:

..Issuer: Cardtronics, Inc.

.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

Downgrades:

..Issuer: Cardtronics, Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD5) from B1 (LGD4)

Assignments:

..Issuer: Cardtronics USA, Inc.

....Senior Secured Bank Credit Facility, Assigned Ba2 (LGD3)

Outlook Actions:

..Issuer: Cardtronics USA, Inc.

....Outlook, Assigned Stable

..Issuer: Cardtronics, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

Cardtronics' Ba3 CFR is constrained by the company's pro forma debt leverage, which stands at just below 3x (Moody's adjusted) as of March 31, 2020, but is expected to approach 4x by the end of 2020, as well as the issuer's inherent exposure to limited growth, and possible contraction, in cash based transactions over the long term. Ongoing uncertainties related to Cardtronics' ability to maintain surcharge and interchange rates also negatively impact the company's credit quality. Additionally, Cardtronics' concentrated equity ownership of approximately 18% by Hudson Executive Capital LP and Affiliates ("HEC") adds risk to the company's credit profile with respect to corporate governance and financial strategy concerns.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and asset price volatility are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The transaction processing sector has been negatively affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Cardtronics' credit profile, including its exposure to cyclicality and secular changes in consumer spending behavior, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the outbreak continuing to spread. Additionally, Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

However, Cardtronics' credit profile is supported by the company's established position as the world's largest independent operator of automated teller machines ("ATM"), scale benefits associated with its sizable ATM network footprint, and relatively predictable operating cash flow derived from transaction-based revenues.

The Ba2 rating for Cardtronics' proposed first lien term loan (issued by subsidiary Cardtronics USA) reflects the issuer's Ba3-PD PDR and a loss given default (LGD) assessment of LGD3. The borrowings under the term loan and the company's revolving credit facility (unrated) are secured by a first priority security interest in substantially all assets of the company. The B2 rating on the 5.50% senior unsecured notes, which is two notches below the CFR, reflects the subordination of these bonds to the senior secured credit facilities.

Cardtronics' SGL-1 Speculative Grade Liquidity assessment is supported by a pro forma unrestricted cash balance of approximately $80 million (after factoring in the repayment of the $287.5 million 1.00% convertible senior notes) as well as Moody's expectation that the company will generate free cash flow of over $100 million in 2020. Additionally, the company's liquidity is bolstered by full availability under its revolving credit facility due in September 2024 (expected to be downsized to $600 million). While the proposed term loan is not subject to maintenance covenants, the revolver is subject to a maximum net leverage ratio and a minimum interest coverage ratio. Moody's expects the company to remain comfortably in compliance with these restrictions in the coming year.

The stable outlook reflects Moody's expectation that Cardtronics will experience a significant contraction in its revenues and adjusted EBITDA in 2020, before recovering somewhat in 2021. Moody's expects Cardtronics' debt repayment will limit the resulting increase in debt leverage during this period to just below 4x.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The rating could be upgraded if Cardtronics demonstrates consistent growth in free cash flow driven by organic revenue expansion and is able to reduce debt to EBITDA leverage below 2.5x (Moody's adjusted).

The rating could be downgraded if Cardtronics experiences meaningful revenue and EBITDA contraction or adopts aggressive financial strategies causing total debt to EBITDA (Moody's adjusted) to rise above 4x on a sustained basis.

Cardtronics, a subsidiary of Cardtronics plc, provides consumer financial services through its network of ATMs and multi-function financial services kiosks. Cardtronics' customers primarily include large and small retailers, operators of facilities such as shopping malls and airports, and financial institutions. We expect Cardtronics to generate nearly $1.1 billion in sales in 2020.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lee Zeltser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karen Nickerson
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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