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Related Issuers
Rating Action:

Moody's downgrades Neustar to B3; outlook remains negative

19 Feb 2021

New York, February 19, 2021 -- Moody's Investors Service ("Moody's") downgraded Neustar, Inc.'s (Neustar) corporate family rating ("CFR") to B3 from B2 and its probability of default rating ("PDR") to B3-PD from B2-PD. Concurrently, Moody's downgraded the company's senior secured first lien bank facility to B2 from B1 and downgraded Neustar's second lien term loan to Caa2 from Caa1. The rating action principally reflects the ongoing deterioration in the issuer's credit quality in recent quarters, driven primarily by a 3% year-over-year contraction in pro forma revenues (9 months through September 2020) and slower than anticipated cost savings realization, resulting in rising debt leverage and the persistence of free cash flow deficits which are unlikely to improve over the coming year. The ratings outlook remains negative.

Downgrades:

..Issuer: Neustar, Inc

.... Corporate Family Rating, Downgraded to B3 from B2

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

....Senior Secured 1st lien Bank Credit Facility, Downgraded to B2 (LGD3) from B1 (LGD3)

....Senior Secured 2nd Lien Bank Credit Facility, Downgraded to Caa2 (LGD5) from Caa1 (LGD6)

Outlook Actions:

..Issuer: Neustar, Inc

.....Outlook remains Negative

RATINGS RATIONALE

Neustar's B3 CFR is constrained by the company's elevated debt/EBITDA of more than 9x (Moody's adjusted for operating leases) for the last twelve months ending September 30, 2020. Debt leverage approximates 10x when expensing capitalized software costs. Additionally, the issuer's credit quality is negatively impacted by weak cash flow trends, relatively limited scale, and a moderate degree of exposure to macroeconomic cyclicality. Neustar's concentrated private equity ownership by Golden Gate Private Equity, Inc. ("Golden Gate") and GIC Special Investments Pte Ltd. ("GIC") presents material corporate governance risks with respect to potentially aggressive financial strategies, particularly with respect to debt financed acquisitions and dividends. These risks are partially offset by Neustar's largely recurring revenue driven business model that is mainly contractual in nature with high customer retention rates that provide relative revenue predictability. Additionally, the low capital intensity associated with the company's operations provide improved free cash flow generation potential over the longer term from currently depressed levels.

Despite Moody's expectations that Neustar will incur ongoing free cash flow deficits over the coming year, the company's adequate liquidity is supported by an unrestricted cash balance of approximately $267million as of September 30, 2020. Neustar's $100 million revolving credit facility is nearly full drawn and matures in August of 2022 adding a degree of refinancing risk to its credit profile. While the company's term loans are not subject to financial covenants, the revolving credit facility has a springing covenant based on a maximum net first lien leverage ratio of 5.5x that the company should be in compliance with over the next 12-18 months.

The negative outlook reflects Moody's expectation that Neustar will continue to face headwinds as it restructures its operations to right size its cost base in line with the revamped business segments. Nevertheless, Moody's expects that revenues will realize nominal organic revenue growth over the next 12 to 18 months, as gains in the company's Marketing, Risk, and Security Solutions segments offset modest contraction in the somewhat larger, but more mature Communications Solutions offering. Adjusted EBITDA is unlikely to grow meaningfully during this period as a degree of pricing pressure in 2020 on contract renewals will weigh on Neustar's profitability. Accordingly, debt leverage is expected to hover around the 9x level.

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

Although not anticipated in the near future, the rating could be upgraded if Neustar generates healthy revenue growth and profitability while adhering to a conservative financial policy such that debt/EBITDA (Moody's adjusted) is sustained below 6.0x (below 7x when expensing capitalized software costs), and annual free cash flow to debt exceeds 5%.

The rating could be downgraded if Neustar were to experience weakening operating performance including declining profitability and ongoing material free cash flow deficits, heightened refinancing risk, or the company maintains aggressive financial policies that meaningfully constrain financial flexibility.

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.

Neustar, acquired by Golden Gate and GIC in 2017 through a leveraged buyout, is a leading global provider of real-time information services and analytics that enable clients to make actionable, data-driven decisions for applications including marketing, contact center fraud detection, caller ID services, and data security. Moody's forecasts that the company will generate pro forma sales of approximately $655 million in 2021.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Lee Zeltser
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

Karen Nickerson
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.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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