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Rating Action:

Moody's rates new Ceridian debt at B1; CFR affirmed at B3; outlook stable

Global Credit Research - 17 Jul 2014

NOTE: On August 13, 2014, the press release was corrected as follows: In the RATING RATIONALE section, in the first sentence of the first paragraph, the second sentence of the second paragraph and the third paragraph, changed the ratio of debt to EBITDA to 8.3x. Revised release follows.

New York, July 17, 2014 -- Moody's Investors Service, ("Moody's") assigned a B1 rating to Ceridian LLC's ("Ceridian") new $702 million HCM Exchange Term Loan Tranche B-2 ("HCM Term Loan"), and the new $125 million senior secured revolver ("New Revolver"). Moody's affirmed the B1 rating on the existing $1.4 billion Senior Secured Term Loan B, which is being amended and will be renamed Term Loan B-1 Tranche ("Ceridian Term Loan"), with $673 million outstanding following this refinancing. All other ratings, including the B3 corporate family rating (CFR) and B3-PD probability of default rating (PDR), were affirmed. The rating outlook remains stable.

Proceeds of the HCM Term Loan will be used to repay about half of the $1.4 billion of the Ceridian Senior Secured Term Loan B due May 2017. Unlike the Ceridian Term Loan, the credit agreement does not require that the HCM Term Loan and the New Revolver be repaid upon the sale or initial public offering (IPO) of Ceridian's Comdata Inc. ("Comdata") subsidiary. Moreover, upon the sale or IPO of Comdata and subject to certain leverage tests, the maturity of the HCM Term Loan and the New Revolver will be extended to September 2020 and September 2019, respectively, from May 2017 and November 2016, respectively.

RATING RATIONALE

Ceridian's B3 corporate family rating reflects Ceridian's high financial leverage, with our expectation of debt to EBITDA (Moody's adjusted) of about 8.3x and free cash flow to debt (Moody's adjusted) of less than 5%, as well as a high level of cyclicality in both its human resources and card servicing businesses. Ceridian faces intense competition from larger U.S. payroll processors with greater financial resources but is a leader in fuel payment cards for U.S. long haul truckers and corporate payment cards for various other industries, which provides customer diversity. Ceridian's business model provides for a relatively predictable recurring revenue stream because of the long term contracts and high retention of its installed user base because of the high switching costs. Nevertheless, high unemployment and low interest rates negatively affect Ceridian's financial results. With a slow growth economy, we expect that profitability and free cash flow will grow slowly resulting in a modest reduction in financial leverage over the next two years.

The stable outlook reflects our expectation that Ceridian will experience some improvement in revenue and FCF in 2014 and 2015 as DayForce HCM rolls out and Ceridian benefits from the cost reduction efforts of the past two years. We expect that debt to EBITDA (Moody's adjusted) will decline to below 8.3x over the next year.

The ratings could be upgraded if Ceridian achieves sustained growth in revenues, profit, and FCF or materially repays debt such that we expect that the ratio of debt to EBITDA (Moody's adjusted) will be sustained below 6x and FCF to debt (Moody's adjusted) will be sustained above the low single digits.

The rating could be lowered if Ceridian fails to achieve organic revenue and EBITDA growth such that Moody's expects the ratio of debt to EBITDA (Moody's adjusted) to remain over 8.3x over the next year or liquidity materially weakens.

Assignments:

..Issuer: Ceridian LLC

....Senior Secured Bank Credit Facility (HCM Term Loan), Assigned B1, LGD2

....Senior Secured Bank Credit Facility (New Revolver), Assigned B1, LGD2

Outlook Actions:

..Issuer: Ceridian LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: Ceridian LLC

.... Corporate Family Rating, Affirmed B3

.... Probability of Default Rating, Affirmed B3-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

....Senior Secured Bank Credit Facility May 9, 2017 (Ceridian Term Loan), Affirmed B1

....Senior Secured Regular Bond/Debenture July 15, 2019, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Nov 15, 2017, Affirmed Caa2

....Senior Unsecured Regular Bond/Debenture Mar 15, 2021, Affirmed Caa3

The principal methodology used in this rating was the Global Business and Consumer Services Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative Grade Non-Financial Companies in the US, Canada, and EMEA, published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Ceridian, based in Minneapolis, Minnesota, is a services and transaction processing company primarily in the human resource, transportation, and retail markets.

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

Lenny J. Ajzenman
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 new Ceridian debt at B1; CFR affirmed at B3; outlook stable
No Related Data.
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