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Rating Action:

Moody's downgrades Voodoo to B2; outlook stable

28 Sep 2022

Madrid, September 28, 2022 -- Moody's Investors Service ("Moody's") has today downgraded Stan Holding S.A.S.'s ("Voodoo" or "the company") corporate family rating (CFR) to B2 from B1 and its probability of default rating (PDR) to B2-PD from B1-PD. Concurrently, Moody's has downgraded to B2 from B1 the rating on the €220 million senior secured term loan B (TLB) and the €30 million senior secured revolving credit facility (RCF), both due in 2025 and raised by Stan Holding S.A.S.. The outlook remains stable.

"The downgrade reflects Voodoo's underperformance relative to our previous expectations, mainly owing to high investments in growth initiatives while their future success remains uncertain. As a result, the company's credit metrics have deteriorated and are no longer commensurate with the existing B1 rating," says Agustin Alberti, a Moody's Vice President-Senior Analyst and lead analyst for Voodoo.

The downgrade reflects the corporate governance considerations associated with the company's (1) material operating underperformance relative to Moody's expectations since  initial rating assignment, and (2) financial policy, as Voodoo is operating with higher leverage and for a longer period of time than initially anticipated. Financial strategy and risk management and management credibility and track record are  governance considerations under Moody's General Principles for Assessing Environmental, Social and Governance Risks Methodology for assessing ESG risks.

A full list of affected ratings is provided at the end of the press release.

RATINGS RATIONALE

In 2021, Voodoo's pro forma Moody's adjusted gross leverage stood at around 9.5x, mainly owing to the impact on EBITDA of €22 million related to stock based compensation, equity stakes builds and equity warrants, which were expensed through the P&L (although most of these items are non cash related). Moody's expects that these high amounts, mainly caused by significant M&A activity in 2021, will decrease over time and will progressively reduce the large gap between Moody's adjusted metrics and company reported ratios.

While Moody's forecasts that the company will report solid organic revenue growth of around 10% in 2022 and 2023, risks are skewed to the downside given the uncertain macroeconomic outlook. At the same time, the company keeps investing in growth initiatives like new internal studios and consumer apps, which result in high marketing and acquisition costs, and in turn, have lower EBITDA generation and margins. Moody's expects the company to generate EBITDA (as adjusted by Moody's) slightly above €30 million in 2022 and c. €45 million in 2023, with an EBITDA margin in the 5%-10% range, below the previous expectations of around 10%-15%.

Moody's forecasts that Voodoo will report a high adjusted gross debt to EBITDA ratio (as per Moody's definition, which includes stock-based compensation in operating expenses, equity stake builds and equity warrants coming from acquisitions) at around 8.5x in 2022 and 6.0x in 2023, above the 4.0x maximum leverage threshold set by Moody's to maintain the B1 category. At the same time, Moody's forecasts limited FCF generation in 2022-2023 compared to previous expectations of around €20 million per year.

More positively, Moody's derives comfort from the company's large cash balance, which results in stronger leverage metrics on a net debt basis.

Voodoo's B2 CFR reflects (1) its relevant position in the growing mobile hypercasual games industry; (2) the growth opportunities from its expansion in new business segments, such as hybrid and casual games; (3) Moody's expectations of decreasing leverage, supported by EBITDA growth;  (4) its high cash balance which supports liquidity and results in stronger leverage metrics on a net debt basis; and (5) the presence of  Tencent Holdings Limited (A1 stable, 22.5% equity stake) and Groupe Bruxelles Lambert (A1 stable, 16.4% equity stake) in the shareholder base, the latter providing a significant equity injection in 2021 to fund M&A.

The rating is constrained by (1) the company's small scale and scope of operations compared to other rated peers; (2) the volatility in operating performance caused by the relatively short life cycle of hypercasual games; (3) its exposure to the volatile and cyclical advertising industry; (4) the low barriers to entry and fierce competition from existing and new gaming rivals; (5) the need to develop a track record of sustainable growth and improving profitability; and (6) the currency mismatch from its high revenue concentration in US dollar while its debt is euro denominated, partially mitigated by hedging.

LIQUIDITY

Moody's considers Voodoo's liquidity to be adequate, supported by its healthy cash balance of €108 million by year end 2021 and its access to a €30 million senior secured revolving credit facility (RCF) due 2025, which is currently fully undrawn. The company has limited FCF generation (excluding M&A), slightly negative in 2022 and turning positive only in 2023.

The company will not have any material maturities until 2025, when the senior secured RCF and the €220 million senior secured TLB mature. The debt facilities contain one net leverage-based maintenance covenant set at 5.0x, with good headroom from 2021 net leverage level of 3.5x (as per covenant definition).

STRUCTURAL CONSIDERATIONS

Voodoo's PDR of B2-PD reflects the use of a 50% family recovery rate, as is customary for all first lien covenant-lite capital structures.

The B2 rated senior secured TLB and senior secured RCF benefit from the same security and guarantee structure and are rated at the same level as the CFR. Voodoo's debt facilities are secured against share pledges, bank accounts and receivables of key operating subsidiaries, and benefit from guarantees from operating entities accounting for at least 80% of group EBITDA.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects the rating agency's view that despite recent underperformance compared to Moody's expectations, Voodoo's profitability will improve over the next 12-18 months resulting in credit metrics commensurate for the B2 rating category. The stable outlook also assumes that any M&A activity will be conservatively financed in line with recent transactions, with significant equity contributions, and that the liquidity profile will remain adequate.

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

While unlikely in the near term, Voodoo's ratings could be upgraded if the company: (1) delivers sustainable revenue growth, increasing its scale and business diversification; (2) develops a track record of strong operating performance resulting in improved profitability levels over different cycles; (3) maintains its Moody's-adjusted gross debt/EBITDA below 4.0x with solid positive FCF generation on a sustained basis; and (4) continues to manage its liquidity prudently.

The rating would face downward pressure if: (1) operating performance deteriorates and profit margins remain depressed such that Moody's-adjusted gross leverage ratio stays above 6.0x on a sustained basis and particularly, if it is not sufficiently balanced by a large cash position on balance sheet; (2) FCF generation becomes sustainably negative; (3) its liquidity weakens; and (4) there is any large debt-funded acquisition resulting in weaker credit metrics.

LIST OF AFFECTED RATINGS

Downgrades:

..Issuer: Stan Holding S.A.S.

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... LT Corporate Family Rating, Downgraded to B2 from B1

....Senior Secured Bank Credit Facility, Downgraded to B2 from B1

Outlook Action:

..Issuer: Stan Holding S.A.S.

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

COMPANY PROFILE

Voodoo, headquartered in Paris (France), is the one of the leading hypercasual mobile game publishers globally. The company was founded in 2013 and has offices in France, Germany, Turkey, UK, Netherlands, Ukraine, Spain, Canada, Singapore, China, and Japan. In 2021, the company generated pro forma revenues of €415 million and adjusted EBITDA (as defined by the company) of €45 million.

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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 https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Agustin Alberti
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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