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Related Issuers
Rating Action:

Moody's places SolarWinds' ratings on review for downgrade following announcement of cyberattack

14 Dec 2020

New York, December 14, 2020 -- Moody's Investors Service, ("Moody's") placed all ratings of SolarWinds Holdings, Inc. ("SolarWinds"), including the B1 Corporate Family Rating (CFR), under review for downgrade. The company's SGL-1 Speculative Grade Liquidity (SGL) Rating is unchanged. This action follows the announcement that SolarWinds has been made aware of a cyberattack that inserted a vulnerability within its Orion monitoring products. SolarWinds also announced that the company has evidence that the vulnerability was inserted within the Orion products and existed in updates released between March and June 2020. SolarWinds has said that it has retained third-party cybersecurity experts to assist in an investigation into the matter and in the development of mitigation and remediation plans and that it is cooperating with government agencies in investigations relating to the cyberattack[1] .

On Review for Downgrade:

..Issuer: SolarWinds Holdings, Inc.

.... Corporate Family Rating, Placed on Review for Downgrade, currently B1

.... Probability of Default Rating, Placed on Review for Downgrade, currently B1-PD

....Senior Secured Bank Credit Facility, Placed on Review for Downgrade, currently B1 (LGD4)

Outlook Actions:

..Issuer: SolarWinds Holdings, Inc.

....Outlook, Changed To Rating Under Review From Stable

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

The ratings review will focus on the potential negative credit implications resulting from the reported cyberattack. To the extent the cyberattack results in reputational damage, a material loss of customers, slowdown in business performance, or high remediation and legal costs, such factors could weaken SolarWinds' credit profile. For the nine months ended September 30, 2020, total revenue from the Orion products was approximately $343 million, or approximately 45% of total revenue[2]. SolarWinds initial comments indicated the cyberattack was limited to a certain customer subset and the company is taking steps to address the vulnerability. The full impact of the security incident has not been disclosed however, as the investigation is on-going.

While SolarWinds' other products do not appear to be affected by the incident, new customers may pause purchases until there is more clarity. Our review will also assess the company's future liquidity requirements as the costs to address the incident and any potential fallout could be substantial. SolarWinds' liquidity profile was very good at September 30, 2020, with $425 million of cash and cash equivalents. For the LTM period ended September 30, 2020, Moody's adjusted Debt to EBITDA was about 4.8x and Moody's adjusted EBITDA less Capex to Interest Expense was about 4.4x.

SolarWinds benefits from its robust free cash flow generation, increasing scale as measured by revenues and very high adjusted EBITDA margins. Occasional M&A activity and transaction related expenses are likely to result in modest, periodic reductions in EBITDA margins and cash flow. SolarWinds is constrained to some degree by the company's moderate but improving scale relative to several much larger and better capitalized peers within the IT infrastructure software market in addition to many smaller point product vendors. Though SolarWinds is still majority owned by Silver Lake Partners and Thoma Bravo, it is publicly traded, and Moody's expects the company to maintain a more balanced financial strategy than typical of private equity owned firms.

SolarWinds' SGL-1 rating is supported by high cash balances and revolver availability of about $425 million and $118 million, respectively, at September 30, 2020. In addition, the company produced strong free cash flow of approximately $332 million in the LTM period ended September 30, 2020.

SolarWinds (NYSE: SWI) is a provider of IT systems infrastructure management software. The company is publicly traded with significant ownership by Silver Lake Partners and Thoma Bravo. SolarWinds, headquartered in Austin, Texas, had non-GAAP total revenues of approximately $1,008 million as of the LTM period ended September 30, 2020.

The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

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 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.

REFERENCES/CITATIONS

[1] SolarWinds Corporation Form 8-K filed with the United States Securities and Exchange Commission on December 14, 2020

[2] SolarWinds Corporation Form 8-K filed with the United States Securities and Exchange Commission on December 14, 2020

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.

Stephen Morrison
Asst Vice President - 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.
© 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.

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

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