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Rating Action:

Moody's assigns first-time Ba2 CFR to Match Group; Ba1 to new sr. sec. credit facilities, Ba3 to new sr. unsec. notes; outlook stable

06 Feb 2020

Approximately $1.675 billion of new debt rated

New York, February 06, 2020 -- Moody's Investors Service ("Moody's") has assigned to Match Group, Inc. ("Match" or the "company") a first-time Ba2 Corporate Family Rating (CFR) and Ba2-PD Probability of Default Rating (PDR). Concurrently, Moody's assigned Ba1 ratings to Match's upsized $750 million revolving credit facility (RCF) and $425 million term loan B, and a Ba3 rating to its proposed $500 million senior unsecured notes. Moody's also assigned a SGL-1 Speculative Grade Liquidity Rating. Match's existing senior unsecured notes remain unchanged at Ba3. The rating outlook is stable.

On 19 December 2019, Match's parent, IAC/InterActiveCorp ("IAC"), announced that its Board of Directors had approved the separation of IAC and Match into two independent public companies. Under the terms of the spin-off transaction, IAC's shareholders will receive a direct ownership interest in Match proportionate to IAC's existing 81% equity stake in Match. In connection with the transaction, Match will retain IAC's $1.7 billion of unrated exchangeable notes and associated hedging instruments, and pay a $3 per share cash consideration to Match's shareholders (including IAC), totaling approximately $840 million.

Net proceeds from the new senior unsecured notes offering together with cash balances will be used to pay the one-time distribution. Match also launched an amendment to its bank credit agreement to extend the tenor of its credit facilities and upsize the RCF to $750 million from $500 million. The spin-off is expected to close by the end of June 2020.

Following is a summary of today's rating actions:

Assignments:

..Issuer: Match Group, Inc.

Corporate Family Rating, Assigned Ba2

Probability of Default Rating, Assigned Ba2-PD

$750 Million Senior Secured Revolving Credit Facility due 2025, Assigned Ba1 (LGD2)

$425 Million Senior Secured Term Loan B due 2027, Assigned Ba1 (LGD2)

$500 Million Senior Unsecured Notes due 2030, Assigned Ba3 (LGD4)

.Speculative Grade Liquidity Rating, Assigned SGL-1

Ratings Unchanged:

$425 Million Senior Secured Term Loan B1 due 2022, Remains Ba2 (LGD3)

$400 Million 6.375% Senior Unsecured Notes due 2024, Remains Ba3 (LGD4)

$450 Million 5.000% Senior Unsecured Notes due 2027, Remains Ba3 (LGD4)

$350 Million 5.625% Senior Unsecured Notes due 2029, Remains Ba3 (LGD4)

Outlook Actions:

..Issuer: Match Group, Inc.

Outlook, Assigned Stable

The assigned ratings reflect the pro forma capital structure at transaction closing as publicly articulated by Match in December. Ratings are subject to change should the capital mix be altered at closing. Ratings are also subject to review of final documentation and no material change in the size, terms and conditions of the transaction as advised to Moody's. Upon transaction close and extinguishment of the existing term loan, Moody's will withdraw the Ba2 rating and LGD assessment on Match's $425 million term loan B maturing 2022.

RATINGS RATIONALE

Match's Ba2 CFR is forward-looking and based on the capital structure at closing, which Moody's expects to occur in Q2 2020. The Ba2 rating reflects the company's high growth profile that will continue to benefit from strong secular adoption of online dating and social networking apps to find romantic partners, friends and business associates. It considers Match's scale and leading market position as the number one online dating provider derived from its portfolio of more than 45 brands including Tinder, the highest grossing dating app globally. The company's dating apps have benefited from high user engagement with approximately 9.8 million average subscribers across more than 190 countries, creating a strong "network effect". Since Q1 2017, Match has added approximately 3.9 million average subscribers at a CAGR of 18.4%. The rating is supported by a business model in which 97% of revenue is recurring subscription or reoccurring micro-transactions. The company also benefits from good geographic diversification with roughly 47% of Match's revenue derived from overseas markets and 53% from the North America. Match has successfully leveraged its dating apps into geographies with higher growth potential by localizing and tailoring the content of its matchmaking apps to a country's cultural norms and preferences. Further support is provided by Match's disciplined investment and acquisition strategy, consistent profitability, strong operating cash flow generation and ability to de-lever from both EBITDA growth and ample free cash flow generation to repay debt.

The Ba2 rating embeds Match's strong projected debt protection measures for the rating category and track record of deleveraging to its target leverage of under 3x net debt to EBITDA (as-reported) via strong EBITDA growth. At transaction close in Q2 2020, Moody's estimates pro forma financial leverage at roughly 5x total debt to EBITDA (as calculated by Moody's) with free cash flow to adjusted debt of approximately 16% (excluding the $840 million one-time distribution). Moody's expects adjusted EBITDA margins (as calculated by Moody's) in the 30%-35% area, supported by robust revenue growth in the 12%-15% range. The company has publicly committed to returning to under its 3x net leverage target within 18 months after the spin-off transaction closes (i.e., by year end 2021). Barring sizable debt-financed M&A, we project Match will de-lever to the mid-3x area (as calculated by Moody's) by year end 2021 mainly via strong EBITDA growth. With the change in ownership upon close, Moody's anticipates a lower risk of outsized dividend payments.

The Ba2 rating is constrained by Match's narrow business focus in a highly competitive industry with revenue concentration in the Tinder brand. Given minimal entry barriers, Match faces significant competition from a multitude of smaller players, such as MagicLab, which owns the number two mobile dating app, Bumble, and was recently acquired by The Blackstone Group; as well as larger players like Facebook, which launched its Facebook Dating mobile app in the US in September.

Despite Match's solid growth trends, there may be periods when it could experience weaker-than-expected revenue growth due to heightened competition, lower ARPU, reduced user traffic or higher customer churn, which constrains the rating. Additionally, margins could experience pressure as Match invests in new geographies, product development, customer acquisition, marketing and data analytics to retain and attract subscribers to its dating apps. The online dating market is also susceptible to sudden changes in consumer engagement and rapidly evolving technology that could lead to declines in user activity and impact payer conversion and monetization. Given that Match's revenue is currently concentrated in the Tinder brand, which accounts for nearly 60% of 2019 revenue, this could become a concern if Tinder user engagement were to weaken. Moody's expects Match to continue to invest in technology, including machine learning and data science, as well as new product features to sustain high consumer engagement.

The Ba2 rating also considers Match's litigation risk. The company is currently a party to three major lawsuits involving marketing practices, stock option valuation interference, and trademark and intellectual property rights. Though the outcome of the lawsuits are uncertain, they are a concern because they could lead to sizable cash outlays as a result of an unfavorable ruling, and involve substantial legal costs and diversion of management resources that could impact operating results.

A social impact that Moody's considers in Match's credit profile is the increasing usage of online dating and social networking platforms that help users find potential matches for dating, friendship and networking, which will continue to benefit Match and support solid revenue and EBITDA growth fundamentals over the next several years. Given that Match is entrusted with sensitive user data, Moody's notes that potential data privacy breaches could prompt some consumers to avoid using the company's dating apps thereby increasing social risk. Offsetting this risk is the company's continuing focus and increasing investment and training in its information security, privacy and user safety programs across all of its dating apps.

The SGL-1 Speculative Grade Liquidity Rating reflects the company's very good internal liquidity supported by sizable free cash flow generation owing to high free cash flow conversion in the 80%-90% range (excluding the one-time distribution). Match's external liquidity will be supported by the upsized $750 million undrawn revolver, which provides ample alternate liquidity for growth opportunities and M&A.

The stable outlook reflects Moody's expectation that Match will experience organic revenue growth consistent with the online dating industry's strong secular growth fundamentals. Moody's projects Match will de-lever to around 3.6x total debt to EBITDA (as calculated by Moody's) within 18 months after completing the spin-off transaction driven primarily by solid EBITDA expansion. The stable outlook also considers the company's "asset-lite" operating model that facilitates meaningful free cash flow, which Moody's projects to be in the $700 million to $800 million range over the next year (excluding the one-time distribution).

Ratings could be upgraded if Match exhibits revenue growth and EBITDA margin expansion leading to consistent retained cash flow to net debt of at least 23% (Moody's adjusted) and leverage sustained near 3x total debt to EBITDA (Moody's adjusted). Ratings could be downgraded if a decline in revenue or higher operating expenses led to EBITDA margin contraction or total debt to EBITDA sustained above 4x (Moody's adjusted) 18 months after the spin-off transaction closes. There would be downward pressure on ratings if EBITDA were to weaken resulting in retained cash flow to net debt sustained below 15% (Moody's adjusted).

Moody's Loss Given Default model excluded the exchangeable notes given their equity-like feature and potential redemption via stock in the future. Moody's also assumed minimal borrowings under the revolver and applied a -1 notch override on the credit facilities' ratings given the potential for a higher mix of secured debt in the future to support acquisition activity or refinancing activity.

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.

Headquartered in Dallas, Texas, Match Group, Inc. is a leading provider of online dating and social networking services via its major brands in 40 languages globally. Revenue totaled approximately $2.1 billion for the fiscal year ended 31 December 2019.

REGULATORY DISCLOSURES

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.

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.

Gregory A. Fraser, CFA
Vice President - Senior 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

Stephen Sohn
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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