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.
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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
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