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Rating Action:

Moody's upgrades 24-7 Intouch CFR to B2; outlook stable

08 Aug 2022

Approximately $580 million of rated debt

Toronto, August 08, 2022 -- Moody's Investors Service (Moody's) upgraded 24-7 Intouch Inc.'s (Intouch) corporate family rating (CFR) to B2 from B3, probability of default rating to B2-PD from B3-PD, and senior secured first lien term loan and revolving credit facility ratings to B1 from B2, and senior secured second lien term loan rating to Caa1 from Caa2. The outlook remains stable.

"Today's rating action reflects improvement in Intouch's financial performance, good track record of deleveraging following acquisitions, and our view that the company's leverage will be sustained below 4.5x over the next 12-18 months" said Aziz Al Sammarai, Moody's Analyst.

Upgrades:

..Issuer: 24-7 Intouch Inc.

.... Corporate Family Rating, Upgraded to B2 from B3

.... Probability of Default Rating, Upgraded to B2-PD from B3-PD

....Gtd Senior Secured 1st Lien Term Loan, Upgraded to B1 (LGD3) from B2 (LGD3)

....Gtd Senior Secured 1st Lien Revolving Credit Facility, Upgraded to B1 (LGD3) from B2 (LGD3)

....Gtd Senior Secured 2nd Lien Term Loan, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)

Outlook Actions:

..Issuer: 24-7 Intouch Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

Intouch's B2 CFR is constrained by its small scale, low barriers to entry that allows for an easy replication of the company's business strategy and for increased competition from new and existing players, tendency for debt-funded acquisitions, and private equity ownership with potential for shareholder friendly transactions.

The rating benefits from favorable EBITDA margins compared to industry peers supported by disciplined pricing strategy, Moody's expectation that leverage will remain around 4x in the next 12-18 months, good operating track record with a diverse client base that value Intouch's ability to represent their brand culture to customers, and good liquidity.

Intouch has good liquidity over the next year. Sources total about $155 million, consisting of cash on hand of $25 million as of March 2022, Moody's expectation of about $30 million positive free cash flow over the next 4 quarters (after principle lease and debt payments), and full availability under its $80 million revolving credit facility expiring in 2025. Uses are about $24 million over the next 12 months, mainly in the form of mandatory term loan amortizations and one-time earnout payment. The secured revolver is subject to a springing first lien net leverage covenant when more than 30% is drawn. If sprung, the company will have good cushion under its revolving credit facility covenant. Alternate liquidity is limited given that the company does not have sizeable tangible assets that it could sell.

The stable outlook reflects Moody's expectation that Intouch will be able to offset cost inflation pressure by growing EBITDA organically keeping debt to EBITDA around 4x over the next 12-18 months.

Intouch has two classes of debt benefitting from both parent and subsidiary guarantees: (1) senior secured first lien $350 million term loan due 2025 and senior secured first lien $80 million revolving credit facility due 2025, and (2) senior secured second lien $140 million term loan due 2026. The security on both classes of debt includes priority on substantially all assets of Intouch and its guarantors. The first lien facilities are rated B1, one notch above the B2 CFR, reflecting their first priority claim in the assets and the loss absorption provided by the second lien debt.  The second lien debt is rated below the CFR at Caa1 reflecting its junior position in the capital structure.

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

A ratings upgrade could be considered if the company is able to meaningful grow scale, debt to EBITDA is maintained below 3.5x, FCF (free cash flow) to debt rises above 10%, maintenance of stable margins and conservative financial policies, and good track record of deleveraging following debt-fund acquisitions.

A ratings downgrade could be considered if debt to EBITDA is sustained above 5x, FCF to debt sustained below 5%, margins fall on a sustained basis, liquidity weakens, or top customers do not renew contracts.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

24-7 Intouch Inc., a private company domiciled in Winnipeg, Canada, provides outsourced customer care contact center services including multi-channel alternatives such as chat, text, email and social media, but also voice. Intouch generated $558 million in sales for the twelve months ended in March 2022.

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Aziz Al Sammarai
Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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