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Rating Action:

Moody's assigns Caa1 rating to House of HR's new senior subordinated notes and affirms B2 CFR; outlook stable

14 Dec 2020

NOTE: On January 20, 2021, the press release was corrected as follows: In the headline, second sentence of the first paragraph, and first sentence of the second paragraph of the press release, the description of the new notes was changed to senior subordinated. Revised release follows.

NOTE: On December 18, 2020, the press release was corrected as follows: In the REGULATORY DISCLOSURES section, the hyperlink in the environmental, social and governance (ESG) risks paragraph was changed tohttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. Revised release follows.

Paris, December 14, 2020 -- Moody's Investors Service ("Moody's") has today affirmed House of HR NV's (House of HR) corporate family rating ("CFR") at B2 and its probability of default rating ("PDR") at B2-PD. Concurrently, Moody's also assigned a Caa1 instrument rating on the new EUR200 million guaranteed senior subordinated notes, issued by House of HR NV, and affirmed the B2 instrument ratings on the EUR370 million guaranteed senior secured notes ("SSNs"), the EUR550 million guaranteed senior secured term loan B ("TLB") and the EUR100 million guaranteed senior secured revolving credit facility ("RCF"), issued by House of Finance N.V. (The). The outlook remains stable on all ratings.

The EUR200 million proceeds from the issuance of new guaranteed senior subordinated notes will be used to fund near term acquisitions and pay for the transaction fees[1]. Moody's notes that despite the majority of the proceeds being intended for acquisitions, the company only disclosed two near term targets, Stevin and Riviera, worth EUR44 million.

"Today's ration action reflects Moody's expectation that the high pro-forma leverage of 6.6x as of September 2020 will reduce to 5.5x in the next 12 months as the company recovers from the coronavirus impact and executes its external growth strategy", says Florent Egonneau - AVP Analyst and lead analyst for House of HR at Moody's. "Nonetheless, this transaction weakly positions House of HR within the B2 rating category. The quality of acquisitions and pace of recovery will be two important factors that Moody's will closely monitor", added Mr. Egonneau.

RATINGS RATIONALE

The B2 CFR is supported by the company's (i) resilience to the coronavirus crisis and quick recovery in revenue demonstrated in the third quarter of this year; (ii) leading market positions in attractive high-margin niche industry segments, driving the outperformance in organic growth; (iii) strong cash-flow generation and counter-cyclical working capital supporting good liquidity; and (iv) high end-market and customer diversity.

Conversely, the rating remains constrained by (i) the perceived rising appetite for leverage following the recapitalization in 2019 and the issuance of unsecured debt in 2020; (ii) the risk involved in executing the company's M&A strategy in the next 12 months, although mitigated by the management strong track record; (iii) the deteriorating growth prospects in the small and medium enterprises segment combined with the cyclical nature of the staffing industry; and (iv) the company's small scale on a global basis compared with leading generalist staffing companies.

LIQUIDITY

Moody's considers House of HR's liquidity to be good. As of 24th November 2020, the company had EUR249 million of available liquidity, consisting of EUR154 million cash on balance sheet and EUR95 million undrawn RCF. Pro-forma the transaction, this amount will increase by EUR152 million, albeit earmarked for future acquisitions. Liquidity is also supported by Moody's expectation of EUR60-80 million free cash flow generation per annum in the next two years.

STRUCTURAL CONSIDERATIONS

Using Moody's Loss Given Default for Speculative-Grade Companies Methodology, the B2-PD PDR is in line with the CFR. This is based on a 50% recovery rate, as is typical for transactions including two layers of debt with loose financial covenants. The RCF, TLB and SSNs rank pari passu and are rated in line with the CFR. The new unsecured bonds are rated Caa1 because they are subordinated to the secured debt.

OUTLOOK RATIONALE

The stable outlook reflects Moody's expectation that the company will successfully deliver its acquisition strategy over the next 12 months, leading to enhanced diversification. The outlook also reflects Moody's expectation that House of HR's leverage will decrease to 5.5x by the end of 2021. The outlook assumes a recovery in revenue generation in the range of 90-95% of 2019 pre-coronavirus levels for 2021, which incorporates a challenging first semester as the temporary governmental unemployment support measures could be terminated in some European countries.

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

Positive rating pressure could arise if the company's:

- successfully executes its acquisition strategy,

- returns to 2019 pre-coronavirus level faster than projected, both in terms of sales and EBITDA margin,

- Moody's adjusted leverage decreases sustainably below 4.5x,

- FCF/debt stays above 5% and liquidity remains strong,

- demonstrates a more conservative financial policy.

Negative rating pressure could arise if the company's:

- operating performance does not recovery from the 2020 lows,

- Moody's adjusted leverage remains above 5.5x in the next 12 months,

- free cash flow turns negative for a prolonged period or if liquidity concerns arise.

PRINCIPAL METHODOLOGY

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.

COMPANY PROFILE

House of HR is a Belgium-based provider of human resource solutions with a focus on small and medium-sized enterprises. The company predominantly operates in Belgium, the Netherlands, Germany and France, and serves three segments: (1) engineering/consulting -- secondment of engineers and highly skilled technicians, consultants and lawyers; (2) specialized staffing -- temporary and permanent staffing services of candidates with technical profiles in Belgium and the Netherlands; (3) general staffing -- temporary staffing services of primarily low-skilled profiles in Germany.

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_1243406.

REFERENCES/CITATIONS

[1] Press Release available on https://www.houseofhr.com/investor-relations/financial-news/proposed-offering-eu200-million-senior-subordinated-notes-due-2027, posted on the 14-Dec-2020.

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.

Florent Egonneau
Asst Vice President - Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Jeanine Arnold
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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