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Rating Action:

Moody's assigns a B1 corporate family rating to Neustar's LBO financing entity, Aerial Merger Sub, Inc.

Global Credit Research - 13 Feb 2017

New York, February 13, 2017 -- Moody's Investors Service, ("Moody's") has assigned a B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) to Aerial Merger Sub, Inc. ("Aerial"), a wholly owned subsidiary of investment funds of Golden Gate Private Equity and GIC Special Investments ("Golden Gate and GIC" or "the sponsors") that will raise debt to finance its acquisition of Neustar, Inc. ("Neustar" or "the company," Ba3 review for downgrade). Aerial plans to raise $1.75 billion of new debt obligations, including a $100 million 1st lien revolving credit facility (undrawn at close), a $350 million two-and-a-half year 1st lien term loan B-1, a $950 million seven year 1st lien term loan B-2, and a $350 million eight year 2nd lien term loan. In addition to the debt, the sponsors will contribute approximately $1.3 billion of equity to finance the $2.9 billion purchase. The existing $808 million of debt (as of 12/31/16) at Neustar will be repaid upon close of the acquisition, which Moody's expects to occur in the second half of 2017. Moody's has assigned a Ba3 (LGD-3) rating to Aerial's 1st lien facilities including the revolver and a B3 (LGD-6) rating to the 2nd lien instrument. The ratings outlook for Aerial is stable.

Upon close of Golden Gate and GIC's proposed acquisition of Neustar, Aerial will be merged with and into Neustar. At that time, Neustar's CFR will likely be downgraded to B1, in line with the ratings of Aerial, and the B1 CFR on Aerial will be withdrawn. The ratings assigned to Aerial reflect Moody's view of the end state capital structure of Neustar following the leveraged buyout ("LBO") transaction. The B1 reflects the incremental leverage and higher interest costs from the debt incurred to buy Neustar. Further, Moody's believes Golden Gate and GIC's ownership will result in a more aggressive financial policy than that of Neustar prior to this LBO transaction. These negative pressures are offset by Neustar's favorable market position within its strong and growing business segments as well as stable recurring revenue.

..Issuer: Aerial Merger Sub, Inc.

Assignments:

.... Corporate Family Rating, Assigned B1

.... Probability of Default Rating, Assigned B1-PD

....Senior Secured 1st Lien Revolving Credit Facility due 5 years, Assigned Ba3 (LGD3)

....Senior Secured 1st Lien Term Loan B1 due 2.5 years , Assigned Ba3 (LGD3)

....Senior Secured 1st Lien Term Loan B2 due 7 years, Assigned Ba3 (LGD3)

....Senior Secured 2nd Lien Term Loan due 8 years, Assigned B3 (LGD6)

Outlook Actions:

....Outlook, Assigned Stable

RATINGS RATIONALE

Aerial's B1 CFR is based on Neustar's end state capital structure following the LBO transaction and the resulting pro-forma structure following the discontinuation of Neustar's role as the sole administrator of services to the Number Portability Administration Center ("NPAC"). The NPAC is the registry system that facilitates telephone number portability between carriers, enabling consumers and businesses in the U.S. to maintain their telephone numbers when they change service providers. While the timing of the transition is not certain, Moody's believes the NPAC contract is likely to migrate to a competitor after the third quarter of 2018. Although Neustar might ultimately retain the NPAC business under some scenarios, Aerial's ratings do not include any incremental NPAC benefits to debt holders beyond 2018, primarily because Moody's believes these benefits are likely to be extracted by the new equity sponsors.

Aerial's rating reflects Neustar's strong free cash flow profile driven by strong margins and low capital intensity. Neustar is well positioned to capitalize on growth in its Information Services and Analytics segment, which helps businesses with targeted marketing, communications and security solutions. Neustar has a strong market position and its valuable authoritative database is a barrier to competition. The business has a stable recurring revenue model which is supported by average contract lengths of approximately three years. Neustar has aggressively pursued a business transformation over the past several years in order to accelerate revenue growth, both organically and through acquisitions. The 2015 acquisitions of MarketShare and the caller authentication assets from TNS better positioned the company to take advantage of the high growth market verticals in which it operates. Furthermore, Neustar's proprietary and hard-to-replicate data sets buttress the company's integrated value proposition in its information services and analytics operating segments, allowing it to create high barriers to entry and maintain its competitive advantage.

Aerial's rating is constrained by the high leverage of Neustar's end state capital structure of around 4.5x (Moody's estimate for FY2019 and including Moody's standard adjustments) and Moody's expectation of an aggressive financial policy given its new private equity ownership structure. In addition, the B1 rating captures Neustar's relatively small scale relative to larger companies across the industries in which it competes.

Moody's expects Neustar to have very good liquidity over the next twelve months. The company generates positive free cash flow and Moody's expects Neustar to have around $50 million in cash and full availability under its new $100 million secured revolving credit facility following the close of the LBO transaction. The revolving credit facility is subject to a springing maximum net secured leverage test which Moody's expects will be set with ample cushion.

The ratings for the debt instruments reflect both the probability of default of Aerial, to which Moody's assigns a PDR of B1-PD, and individual loss given default assessments. The 1st lien term loans and revolving credit facility are rated Ba3 (LGD3), one notch above the CFR, given the loss absorption from the B3 (LGD6) rated 2nd lien loan.

Aerial's stable outlook reflects Moody's view that Neustar will maintain its upward growth trajectory and consistently solid margins, as well as maintain its competitive positioning in the end markets in which it operates. The stable outlook also anticipates that the transition of NPAC services will not be disruptive to Neustar's continued operations. Moody's expects Neustar's end state capital structure following the LBO transaction and the resulting pro-forma structure following the discontinuation of the NPAC contract will result in leverage near or below 4.5x EBITDA (Moody's adjusted) .

Moody's could upgrade Aerial's B1 rating reflecting Neustar's steady-state (i.e. post-LBO transaction close and post-NPAC discontinuation) if leverage is sustained below 3.5x Debt/EBITDA (Moody's adjusted) and free cash flow is at least 10% of Moody's adjusted debt. The rating could be downgraded if steady-state leverage is sustained above 4.5x (Moody's adjusted) or if cash flow deteriorates such that FCF/Debt is less than 5%. In addition, the rating could be downgraded if leverage increases from debt issued to return cash to shareholders or if there is deterioration of Neustar's market position irrespective of its credit metrics.

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.

Based in Sterling, VA, Neustar, Inc is the leading provider of information and data services catering to carriers and enterprises. For last twelve month ended December, 2016, Neustar generated approximately $1.2 billion in revenue.

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.

Mark Stodden
VP - Senior Credit Officer
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

John Diaz
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

No Related Data.
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