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Rating Action:

Moody's assigns Ba3 ratings to VeriFone's proposed 1st lien sr. sec. credit facilities; affirms Ba3 CFR, outlook stable

Global Credit Research - 06 Jun 2014

New York, June 06, 2014 -- Moody's Investors Service ("Moody's") assigned Ba3 ratings to VeriFone, Inc's ("VeriFone") proposed 1st lien senior secured credit facilities, consisting of a $400 million revolving credit facility due 2019, $550 million term loan A due 2019 and a $250 million term loan B due 2021. In addition, Moody's affirmed the company's Ba3 Corporate Family Rating ("CFR"), B1-PD Probability of Default Rating ("PDR") and SGL-2 Speculative Grade Liquidity rating. The rating outlook was changed to stable from negative.

Proceeds from the proposed debt offering will be used to refinance existing debt and pay fees and expenses associated with the transaction, resulting in a leverage neutral transaction. LGD point estimates are subject to change and all ratings are subject to the execution of the transaction as currently proposed and Moody's review of final documentation.

The affirmation of VeriFone's Ba3 CFR acknowledges the proposed leverage neutral refinancing transaction (resulting in an improved debt maturity profile), Moody's expectations for healthy free cash flow generation and continued sequential improvements in revenue and EBITDA (albeit from a low base in fiscal 2013) as strategic management initiatives begin to take hold. The affirmation also reflects Moody's expectations that VeriFone's ongoing restructuring/reengineering initiatives will position the company to more effectively compete and evolve in the fast changing electronic payments space.

The change in outlook to stable from negative reflects Moody's expectations that the company will be successful in executing its turnaround plans and will sustainably grow revenue and EBITDA such that financial leverage (on a Moody's adjusted basis) will approach 3.5 times over the next 12 to 18 months.

The following summarizes the rating activity:

Issuer: VeriFone, Inc.

Ratings affirmed:

Corporate Family Rating at Ba3

Probability of Default Rating at B1-PD

Speculative Grade Liquidity Rating at SGL-2

Ratings assigned:

Proposed $400 million 1st lien senior secured revolving credit facility due 2019 at Ba3 (LGD3, 31%)

Proposed $550 million 1st lien senior secured term loan A due 2019 at Ba3 (LGD3, 31%)

Proposed $250 million 1st lien senior secured term loan B due 2021 at Ba3 (LGD3, 31%)

Ratings to be withdrawn at close of transaction:

$425 million senior secured revolving credit facility due 2016 at Ba3 (LGD3, 31%)

$884 million (outstanding) senior secured term loan due 2016 at Ba3 (LGD3, 31%)

$100 million senior secured term loan due 2018 at Ba3 (LGD3, 31%)

The rating outlook is stable.

RATINGS RATIONALE

VeriFone's Ba3 Corporate Family Rating ("CFR") is supported by its leading market position in the Point of Sale ("POS") terminals market in several major economies and a highly diversified revenue base. The rating considers the company's sizeable installed base of POS devices and customer relationships globally, which provide future revenue growth opportunities in the form of replacements and upgrades of POS terminals and additional services. The Ba3 rating also incorporates our expectation that VeriFone's elevated financial leverage of about 4.8 times (as measured by Moody's adjusted debt to EBITDA) as of April 30, 2014, will approach 3.5 times over the next 12 to 18 months primarily through EBITDA expansion.

The rating acknowledges the company's prior execution issues in regards to significant revenue declines during fiscal 2013 and current challenges in improving revenue and EBITDA over the next few quarters. However, VeriFone's healthy free cash flow generation, as well as management's commitment to pursue a conservative financial policy, especially during the ongoing business transformation/restructuring process, provide key support to the Ba3 rating.

The company's rating however, does incorporate an increasing level of disintermediation risk for hardware based POS systems, as competing technologies and software constantly emerge in an evolving electronic payments market. Nevertheless, Moody's believes this risk is not likely to impact Verifone's business in the near term, as it will take time for consumers to adapt to these new technologies. The Ba3 rating is also constrained by increased competitive pressures from existing POS terminal providers, the company's narrow product focus and reliance on one-time product sales which comprise about 60% of its revenues. The rating also incorporates VeriFone's execution risk in managing the ongoing business restructuring initiatives and transition towards multi-year Payment as a Service ("PaaS") contracts from predominantly product-oriented sales.

VeriFone's ratings could be downgraded if the company is unable to demonstrate incremental improvements in credit metrics over the next 2 or 3 quarters and if Moody's comes to believe that the company is unlikely to reduce and manage total debt-to-EBITDA (Moody's adjusted) around 3.5 times in the next 12 to 18 months. The ratings could also be downgraded as a result of material changes in payment industry dynamics leading to higher disintermediation risk, i.e. increasing adoption of software/mobile based alternative payment acceptance solutions. Escalating competition or weak business execution that limits VeriFone's ability to improve EBITDA margins or sustain free cash flow in the 10% to 15% range of total debt could also result in a ratings downgrade.

Although a ratings upgrade is not expected in the next 12 to 18 months, Moody's could raise VeriFone's ratings over time if the company's revenue mix continues to shift towards recurring service revenues resulting in more predictable and stronger cash flow generation, total debt to EBITDA sustains below 3.0 times, EBITDA margins improve to above 20% (Moody's adjusted, incorporating non-cash stock compensation and operating lease adjustments) and if Moody's believes that the company will be able to strengthen its market position within the electronic payments solutions space.

The principal methodology used in this rating was the Global Business & Consumer Service Industry Rating Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in San Jose, California, VeriFone is a leading provider of point of sale hardware systems, as well as technology based payment solutions and services.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Harmandeep S Saggu
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's assigns Ba3 ratings to VeriFone's proposed 1st lien sr. sec. credit facilities; affirms Ba3 CFR, outlook stable
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