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Rating Action:

Moody's assigns Genuine Financial B3 CFR, stable outlook; rates acquisition financing

14 Jun 2018

Approximately $1.15 billion of new debt rated

New York, June 14, 2018 -- Moody's Investors Service ("Moody's") assigned a first-time B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR) to Genuine Financial Holdings, LLC ("GIS"; dba "Genuine Information Solutions LLC") in connection with the company's leveraged buyout merger with Corporate Risk Holdings (dba "HireRight" or "CRH"). At the same time, Moody's assigned a B2 rating to the company's proposed $935 million first lien senior secured credit facility ($100 million revolver and $835 million term loan) and a Caa2 rating to the proposed $215 million senior secured second lien term loan. The ratings outlook is stable.

Proceeds from the proposed credit facilities along with new and rollover equity will be used to fund a buyout of HireRight by financial sponsors General Atlantic and Stone Point Capital, in a transaction valued at approximately $1.4 billion. Upon close of the transaction, HireRight will be combined with GIS, an existing General Atlantic portfolio company to create the largest global player in background checks and screening solutions with approximately $600 million in combined pro forma revenue as of twelve months ended March 31, 2018. The proceeds will also be used to refinance all existing debt at both companies, pre-fund one-time CRH incentive payments and corporate staff costs, and pay transaction fees and expenses. The combined company will enter into a new $100 million revolving credit facility, which is expected to be undrawn at closing. The current ratings of Corporate Risk Holdings, LLC (including the Caa1 CFR and positive outlook) are not affected and will be withdrawn upon closing of the transaction.

Moody's views the merger between HireRight and GIS strategically sound as it will create a strong competitor with a sizable customer base, wider sector diversification and improved competitive positioning. The combined company will benefit from HireRight's global client background screening tools, including integrations into over 25 Applicant Tracking Systems (ATS) and offshoring data validation capability to drive overall efficiencies, as well as GIS' recent investments in research and development to enhance product offerings. Additionally, management has identified meaningful cost synergies that the company expects to execute within 18 months of closing.

Moody's assigned the following ratings to Genuine Financial Holdings, LLC:

---Corporate Family Rating at B3

---Probability of Default Rating at B3-PD

---Proposed $100 million first lien senior secured revolving credit facility due 2023, at B2 (LGD3)

---Proposed $835 million first lien senior secured term loan due 2025, at B2 (LGD3)

---Proposed $215 million senior secured second lien term loan due 2026, at Caa2 (LGD5)

---Outlook at Stable

The assignment of ratings remain subject to Moody's review of the final terms and conditions of the proposed financing and merger transaction that is expected to close by June 2018.

RATINGS RATIONALE

Genuine Financial Holdings' B3 CFR is constrained by the company's highly leveraged capital structure, estimated at 7.7 times debt-to-EBITDA (Moody's adjusted and excluding future synergies for the combined company) at March 31, 2018 and elevated integration risk associated with the combination of two businesses, GIS and HireRight, with potential service levels disruption or delays in synergy realization that could temporarily increase leverage. The rating also considers significant one-time costs to achieve synergies for technology and system integration, employee retention and severance that will negatively impact cash flow over the next 12-15 months. Deleveraging over the next 12-18 months is predicated on management's ability to successfully integrate both companies and realize large cost savings and synergies, while remaining competitive in the market. Although leverage will be high for the rating at the close of the transaction, Moody's estimates that the company will be able to improve on this measure over the next 12-18 months, with debt-to-EBITDA expected to decline to around 7.0 times by 2019. These leverage projections assume the company achieves the majority of its cost savings (net of cost to achieve) from the merger, while maintaining a stable topline. Expected growth rates for the global screening and verifications market are modest, in the low-single digits, and Moody's expects steady growth will be driven by compliance regulations, data and security concerns, and employers' demands for faster, more efficient recruiting.

Genuine Financial Holdings' ratings are supported by the merged company's greater scale, geographic and industry, diversification, as well as the combined position as the largest global provider of background screening and verification solutions. The company's service offerings extend to multiple regions including most major countries. Moody's believes few other companies including Sterling Midco Holdings, Inc. ("Sterling," B2 Stable) and STG-Fairway Acquisitions, Inc. ("First Advantage," Caa1 Positive) have similar geographic service offering breadth. The ratings additionally incorporate the benefits of the combined company's diversified customer base of blue-chip partners with no significant customer concentration and historically high renewal rates. The company's asset-light operating model with a highly variable cost structure and a good EBITDA margin also provide rating support. Moody's expects EBITDA margins to improve to mid-20% as GIS transitions to HireRight's platform and leverages its offshore fulfillment capabilities.

Moody's expects the company to maintain adequate liquidity over the next 12-15 months. Sources of liquidity consist of a cash balance of $7.5 million at close of the transaction, available funds under the new $100 million revolving credit facility (undrawn at closing), as well as expectations for modestly positive free cash flow of approximately $30-40 million over the next 12-15 months. These cash sources will provide adequate coverage of annual mandatory term loan amortization of $8.35 million, paid quarterly. The cash flow forecast is sensitive to the timing of outlays related to cost saving initiatives. Liquidity also benefits from the covenant-lite structure. The revolver is expected to have a springing net first lien leverage ratio (to be determined) if more than 35% of the revolver is drawn. The company is not expected to utilize the revolver materially during the next 12-15 months and is expected to remain well in compliance with the springing net first lien leverage covenant.

The stable rating outlook reflects Moody's expectation that management will successfully integrate both businesses, complete client migration with limited service disruptions and achieve the bulk of planned cost savings in a timely manner, which will be the principal driver of anticipate deleveraging and free cash flow growth. Moody's anticipates low-single digit revenue growth, margin expansion, and credit metric improvement with debt-to-EBITDA leverage (Moody's adjusted) trending to around 7.0 times by 2019.

Moody's would consider an upgrade if the company is able to demonstrate organic growth and margin expansion including through a successful integration of the two companies, while maintaining good liquidity with balanced financial policies. Quantitatively, the ratings could be upgraded if Moody's believes that the company will maintain debt-to-EBITDA (Moody's adjusted) below 6.0 times and free cash flow-to-gross debt in the mid-single digit percentage range.

Conversely, the ratings could be downgraded if the company cannot translate planned synergy benefits into higher EBITDA, revenue unexpectedly declines for any reason or if the company generates weak or negative free cash flow on sustained basis. The ratings could also be downgraded if the company's does not reduce its high debt-to-EBITDA (Moody's adjusted) or liquidity deteriorates.

Headquartered in Irvine, California, Genuine Financial Holdings, LLC is the parent company of Genuine Information Solutions LLC and HireRight. The combined company will be the largest global provider, based on revenue, of background screening and compliance solutions, including criminal background checks, credential verification, employee drug testing, and fingerprint-based screening for enterprise clients. Pro forma revenue for the combined company is estimated at around $600 million as of twelve months ended March 31, 2018. GIS will be majority owned by General Atlantic and Stone Point Capital, with remaining shares held by Ray Conrad (the founder of GIS).

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 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.

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.

Oleg Markin
AVP-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

Lenny J. Ajzenman
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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