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Rating Action:

Moody's assigns first time B3 CFR to Park Place Technologies; outlook stable

22 Mar 2018

Approximately $395 million of new debt rated

New York, March 22, 2018 -- Moody's Investors Service ("Moody's") assigned a B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR) to Park Place Technologies, LLC. ("Park Place") in connection with the company's proposed dividend recapitalization transaction. Concurrently, Moody's assigned a B2 rating to Park Place's proposed $280 million first lien senior secured credit facility ($30 million revolver and $250 million term loan), and a Caa2 rating to the proposed $115 million senior secured second lien term loan. The ratings outlook is stable.

The proceeds from the new debt issuance will be used to refinance existing debt, fund a sizable dividend of approximately $133 million to its financial sponsors, and pay transaction-related fees and expenses. The proposed $30 million revolving credit facility is expected to remain undrawn at close. Park Place was acquired by GTCR, LLC (Sponsor) in a leveraged buyout transaction for approximately $290 million in December 2015.

Moody's assigned the following ratings to Park Place Technologies, LLC.:

---Corporate Family Rating at B3

---Probability of Default Rating at B3-PD

---Proposed $30 million gtd first lien senior secured revolving credit facility due 2023 at B2 (LGD3)

---Proposed $250 million gtd senior secured first lien term loan due 2025 at B2 (LGD3)

---Proposed $115 million gtd senior secured second lien term loan due 2026 at Caa2 (LGD5)

---Outlook at stable

The assigned first-time ratings remain subject to Moody's review of the final terms and conditions of the proposed financing that is expected to close in March 2018.

RATINGS RATIONALE

The B3 CFR reflects Park Place's high pro forma financial leverage at close of transaction, its small scale and limited operating scope within the highly fragmented and competitive niche third-party maintenance ("TPM") market of the global IT services industry. Park Place is a global pure play TPM provider of post-warranty services. The company competes against larger and smaller TPM providers as well as original equipment manufacturers ("OEMs") that sell data center hardware maintenance contracts and repair services. Moody's expects the company's high pro forma debt-to-EBITDA leverage of about 8.0 times (Moody's adjusted and incorporating EBITDA contribution from recent acquisitions) at December 31, 2017 to decline below 7.0 times over the next 12-18 months through strong revenue and earnings growth and modest debt repayment. Moody's expects the company to maintain annual organic revenue growth above 10% over the next 2-3 years given favorable TPM market trends despite a mature installed base, as well as management's plan to broaden its international reach. Continued global expansion should allow Park Place to capture more multi-national clients that lead to higher field engineer utilization rates within existing overseas markets. This should result in modest margin improvements despite the potential drag from building out a presence in new geographic regions. Park Place also plans to continue to aggressively invest to drive growth, but also to streamline costs and improve profitability. Debt repayment in excess of mandatory amortization is not anticipated as Moody's believes free cash flow will be directed towards acquisitions as consolidation within the fragmented TPM market is likely to continue.

Park Place's ratings are supported by the company's competitive position as the largest global pure play TPM provider, favorable trends by customers wanting to extend the useful life of older IT equipment, and a track record of high renewal rates and strong recurring and predictable subscription revenues. The company also benefits from customer and end market diversity with the top ten customers comprising less than 10% of total sales, and somewhat recession-resilient industry fundamentals. TPMs offer steep discounts compared to OEM post-warranty service contracts (often up to 50% off), effectively allowing customers to increase the useful life of data center equipment and delay the purchase of expensive new hardware. Accordingly, TPM services would likely become even more valuable to customers in times of weaker financial performance or in a recession.

Moody's considers Park Place's liquidity as adequate. Liquidity is provided by at least $8 million of balance sheet cash at closing, expectation for modest free cash flow in 2018 and full availability under the proposed $30 million revolving credit facility expiring in 2023. Moody's expects annual free cash flow of $15 million in 2018 will provide adequate coverage of required annual term loan amortization of $2.5 million, paid quarterly. A financial covenant is applicable to the revolver only if it is drawn more than 35%. There is no financial maintenance covenant applicable to the term loan. Moody's does not expect the covenant to be triggered over the near term, and believes there is ample cushion within the covenant based on our projected earnings levels for the next 12-15 months.

The B2 ratings on the first lien term loan and revolver reflect the B3-PD PDR and a Loss Given Default ("LGD") Assessment of LGD3. The secured debt is positioned ahead of the second lien term loan and unsecured trade claims and operating leases that provide loss absorption support. The Caa2 rating on the second lien term loan reflects the B3-PD PDR and LGD Assessment of LGD5 as well as the term loan's position behind the substantial amount of first lien debt in the capital structure. The revolver and term loans will be supported by guarantees and asset pledges from all material domestic subsidiaries. The revolver and term loans will also have a guarantee from PPH Acquisition and PPT Holdings III LLC which are intermediate holding companies. PPT Holdings I LLC, the expected audited entity, will not guarantee the debt instruments, but Moody's expects it will receive sufficient information to monitor the activities of the borrowing group and maintain ratings going forward.

The stable rating outlook reflects Moody's expectations for organic revenue growth of around 10% per year and that the company's credit metrics will improve over the next 12-18 months such that debt-to-EBITDA (Moody's adjusted) will trend towards 7.0 times. Moody's also anticipates that Park Place will maintain adequate liquidity, including free cash flow-to-debt in the low-to-mid single digits.

The ratings could be upgraded if revenue growth, margin expansion and debt repayment lead Moody's to believe that debt-to-EBITDA (Moody's adjusted) will remain below 6.0 times and free cash flow-to- debt will remain in the mid-single digits. Balanced financial policies that would support Park Place sustaining these credit metrics and adequate liquidity would also be important considerations for any positive ratings pressure.

The ratings could be downgraded if revenue growth slows considerably or if gross margins deteriorate meaningfully indicating increased competitive pricing pressures. The ratings could also be downgraded if Moody's believes that debt-to-EBITDA (Moody's adjusted) will remain above 7.0 times, free cash flow is sustained at a breakeven level on other than a temporary basis or if liquidity deteriorates for any other reason.

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.

Park Place Technologies, LLC., based in Cleveland, Ohio, is a pure-play provider of third-party maintenance support services for data center hardware to clients globally. The company was acquired by GTCR, LLC in December 2015. Park Place had pro forma revenues of approximately $185 million in revenue in 2017.

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
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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