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Rating Action:

Moody's rates Genesys new Sr Secured debt B2, and affirms CFR at B2

Global Credit Research - 21 Oct 2013

New York, October 21, 2013 -- Moody's Investors Service assigned a B2 rating to Greeneden U.S. Holdings II, LLC.'s ("Genesys") tranche of new senior secured Term Loans due November, 2020, downgraded the Senior Secured debt to B2, and affirmed the B2 Corporate Family (CFR) and the B2-PD Probability of Default Ratings. Proceeds of the new Term Loans will be used to fund the acquisition of Echopass Corp, with the delayed drawdown portion expected to fund the call of the 12.5% Senior Notes due 2020. The outlook is stable

Downgrades:

..Issuer: Greeneden U.S. Holdings II, LLC

....Senior Secured Debt (Bank Credit Facilities due Feb 8, 2018 and Feb 8, 2020), Downgraded to B2 (LGD 3, 48%) from B1 (LGD 3, 36%)

Assignments:

..Issuer: Greeneden U.S. Holdings II, LLC

....Senior Secured Term Loans due November 2020, Assigned B2 (LGD3, 48%)

Outlook Actions:

..Issuer: Greeneden U.S. Holdings II, LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: Greeneden U.S. Holdings II, LLC

.... Probability of Default Rating, Affirmed B2-PD

.... Corporate Family Rating, Affirmed B2

RATING RATIONALE

"Following the vigorous pace of acquisitions in 2013, Moody's expects Genesys will now focus on integrating these acquisitions and reducing debt in the near term", noted Terry Dennehy, Senior Analyst at Moody's Investors Service.

Moody's believes Echopass and the other acquisitions in 2013 generate much lower margins than Genesys, and estimates pro-forma debt to EBITDA at above 5.5x, (after Moody's standard adjustments). This leverage is high given the relative maturity of market in which Genesys operates - contact center software -- and is reflected in the B2 CFR.

Debt to EBITDA is likely to be on-course to decline to about 4.5x as the acquired operations are integrated into Genesys, although Moody's believe Genesys will periodically re-lever either through leveraged acquisitions or distributions to the sponsor. Moody's expects that debt to EBITDA (Moody's adjusted) will range between 4x and 5x over time.

Nevertheless, we note Genesys's position as a longstanding provider in the modest sized contact center systems market, which includes the integrated hardware and software providers Avaya and Cisco, which together hold about a third of the market. Moreover, Genesys' customer base provides a recurring maintenance revenue stream which contributes to cash flow predictability, though license revenues can decline during periods of weak corporate IT spending.

The secured rating was lowered to B2 from B1 to reflect our expectation that Genesys will use some of the proceeds of the new secured Term Loans to repay the unsecured debt. As the secured debt holders will no longer benefit from a cushion of unsecured capital, the secured debt rating was lowered to reflect a lower expected recovery.

The stable rating outlook reflects our expectation that Genesys will direct its attention to integrating the recent acquisitions, limiting near term acquisitions to the smaller, technology purchases similar in scale to the Utopy acquisition in February. We expect that the acquisitions will contribute to revenue growth, such that Genesys will generate organic revenue growth at least the mid single digits. We expect that debt to EBITDA (Moody's adjusted) will be on-course to decline to 4.5x over the next year through a combination of EBITDA growth and some debt reduction.

The ratings could be downgraded if Genesys does not remain on course to deleverage such that Moody's believes that debt to EBITDA (Moody's adjusted) will remain above 4.5x or FCF to debt (Moody's adjusted) will remain below the mid-single digits percentage. The ratings could also be downgraded if Moody's believes there are difficulties in integrating the acquisitions or if cash is returned to shareholders prior to meaningful deleveraging. The ratings could be upgraded if the integration of the acquisitions is completed without any significant disruptions producing operating synergies sufficient to sustain Genesys's operating margins at least in the mid twenties percent level, along with organic revenue growth sustained at least in the upper single digits. We would expect that these operational improvements would be combined with outright debt reduction such that debt to EBITDA (Moody's adjusted) would be maintained below 4x and FCF to debt (Moody's adjusted) would be maintained in the upper single digits.

The senior secured debt is issued by two US borrowers (Greeneden US Holdings II, LLC, and Genesys Telecom Holdings, US, Inc) and one European borrower (Greeneden Lux 3 S.ar.l.). There are upstream and downstream guarantees, including a guarantee from Greeneden US Holdings I, LLC, the immediate parent of Greeneden US Holdings II, LLC.

Genesys, based in Daly City, California, provides contact center software, including call routing, analytics, and interactive voice response. Genesys is owned by the private equity firm Permira Funds with the participation of Technology Crossover Ventures.

The principal methodology used in this rating was Global Software Industry published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

John Terrence Dennehy
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert P Jankowitz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Genesys new Sr Secured debt B2, and affirms CFR at B2
No Related Data.

 

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