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09 Mar 2011
Approximately $1.6 billion of new debt rated
New York, March 09, 2011 -- Moody's Investors Service upgraded the ratings on The Reynolds &
Reynolds Company's ("Reynolds") debt: Corporate
Family Rating to Ba2 from Ba3, the Probability of Default Rating
to Ba3 from B1, and the Senior Secured Credit Facilities to Ba2
from Ba3. Moody's also assigned Ba2 ratings to the proposed
$600 million senior secured term loan A due 2016 and $950
million senior secured term loan B due 2018, which will refinance
the existing Senior Secured Term Loan (due 2017). Ratings on the
existing Senior Secured Credit Facilities will be withdrawn following
completion of the refinancing. The outlook is revised to stable
from positive.
RATINGS RATIONALE
The ratings upgrade "reflects the ongoing improvement in Reynolds'
core automotive dealer management systems operations, enhanced credit
protection measures, as well as the expectation of further reduction
in total debt to EBITDA to below the 3x level," according
to Moody's vice president, Gregory Fraser. This is
a function of Reynolds' consistent year-over-year
expansion in operating margin and EBITDA, as well as its high conversion
of EBITDA to free cash flow.
We expect Reynolds to continue to de-lever through a combination
of EBITDA expansion and debt repayment. This should result in total
debt to EBITDA (Moody's adjusted) declining to under 3x over the
coming year versus about 3.4x as of December 31, 2010.
The rating revision also captures the significant interest savings (approximately
$23 million per annum) as a result of the proposed refinancing
which should further improve debt protection measures. Moody's
views favorably the redistribution of Reynolds' debt maturity profile
across a three-year time span (2016-18) as a result of the
proposed transaction.
The stable rating outlook reflects the company's leading automotive
dealership management systems (DMS) market share which results in good
revenue visibility from its recurring software maintenance business,
and the importance of automotive services and DMS to automotive retailers'
day-to-day operations. Given that Reynolds will no
longer have access to a revolver, we expect the company to maintain
at least $100 million of cash and generate substantial free cash
flow.
The rating could be upgraded following steady organic revenue growth,
particularly from successful initiatives targeting dealer spend outside
Reynolds' traditional DMS business without impairing its core DMS
operations, expand margins and reduce total debt to EBITDA to under
2x (Moody's adjusted). However, we view Reynolds'
termination of its revolver as a credit negative. So any upgrade
is unlikely until a fully committed credit facility is restored.
The rating could be lowered if Reynolds experienced customer and/or market
share losses resulting in meaningful revenue contraction, margin
erosion, and lower EBITDA and free cash flow. Leverage above
3.5x adjusted total debt to EBITDA could also result in a downgrade.
Reynolds intends to use the new facility proceeds to refinance its existing
$1.6 billion senior secured term loan maturing 2017.
Moody's will withdraw the ratings on the existing credit facilities
upon their full retirement.
The following ratings were upgraded:
Corporate Family Rating to Ba2 from Ba3
Probability of Default Rating to Ba3 from B1
$1.6 Billion (originally $1.82 Billion) Senior
Secured Term Loan due 2017 to Ba2 (LGD-3, 32%) from
Ba3 (LGD-3, 32%)
$75 Million Senior Secured Revolving Credit Facility due 2015 to
Ba2 (LGD-3, 32%) from Ba3 (LGD-3, 32%)
The following new ratings were assigned:
$600 Million Senior Secured Term Loan A due 2016 -- Ba2 (LGD-3,
31%)
$950 Million Senior Secured Term Loan B due 2018 -- Ba2 (LGD-3,
31%)
Moody's subscribers can find additional information in the Reynolds &
Reynolds Credit Opinion published on www.moodys.com.
The last rating action was on April 07, 2010 when Moody's
upgraded the company's Corporate Family Rating to Ba3 with a positive
outlook.
The principal methodology used in this rating were Global Business &
Consumer Service Industry, published in October 2010, and
Loss Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
The Reynolds & Reynolds Company, headquartered in Dayton,
Ohio, is a privately-owned leading provider of dealership
management systems and integrated solutions for automotive retailers.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, and confidential and proprietary Moody's
Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Jankowitz
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's raises Reynolds & Reynolds' CFR to Ba2, assigns Ba2 to new term loan; outlook stable
No Related Data.
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