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Rating Action:

Moody's upgrades VeriSign's CFR to Ba1; outlook is stable

02 May 2019

Approximately $1.8 billion of rated debt affected

New York, May 02, 2019 -- Moody's Investors Service ("Moody's") upgraded VeriSign, Inc.'s ("Verisign") Corporate Family Rating (CFR) to Ba1 from Ba2, Probability of Default Rating (PDR) to Ba1-PD from Ba2-PD and its senior unsecured notes rating to Ba1 from Ba2. Concurrently, the company's Speculative Grade Liquidity Rating (SGL) was affirmed at SGL-1. The ratings outlook is stable.

The upgrade of the CFR reflects steadily improving revenue and earnings, solid credit metrics for the rating category, large cash balances as well as the benefit from the new cooperative agreement with the U.S. Department of Commerce (DoC). The agreement between Verisign and the DoC clears the way for the company to change its .com registry agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) to increase wholesale prices on .com top-level domains (TLD), while removing some regulatory oversight, among other provisions. Enhanced pricing flexibility will enable the company to increase its already-robust free cash flow beginning in 2021.

Moody's anticipates that Verisign will generate at least $650 million in free cash flow over the next 12-18 months, sustain its high EBITDA margin (above 65%) and prudently manage its cash sources towards share repurchases that will not materially weaken its credit metrics.

Moody's took the following rating action on VeriSign, Inc.:

---Corporate Family Rating, upgraded to Ba1 from Ba2

---Probability of Default Rating, upgraded to Ba1-PD from Ba2-PD

---$750 million senior unsecured notes due 2023, upgraded to Ba1 (LGD4) from Ba2(LGD4)

---$550 million senior unsecured notes due 2027, upgraded to Ba1 (LGD4) from Ba2 (LGD4)

---$500 million senior unsecured notes due 2025, upgraded to Ba1 (LGD4) from Ba2 (LGD4)

---Speculative Grade Liquidity Rating, affirmed at SGL-1

Outlook Action:

---Ratings Outlook Stable

RATINGS RATIONALE

The Ba1 CFR is supported by Versign's dominant position as the exclusive global registry operator for the most commercially visible .com top-level domain, its strong profitability and the recurring revenue stream. Verisign maintains very good liquidity and Moody's expects the company will generate at least $650 million in free cash flow in 2019 (approximately 39% of total debt). The company's debt-to-EBITDA (Moody's adjusted), estimated at 2.3x as of March 31, 2019, has remained in the low 2.0x range for more than a year but Moody's expects that over the next 12-18 months Verisign may incur additional debt to pursue more aggressive share repurchases in excess of internally generated free cash flow, temporary driving debt-to-EBITDA above 3.0x.

Verisign faces strong competition from alternative TLDs and other online platforms, and the increasingly mature demand for .com domains will constrain its organic growth. Verisign will remain the sole registry operator of .com and .net TLDs through 2024 and 2023, respectively, under its registry agreements with Internet Corporation for Assigned Names and Numbers (ICANN). The .com registry agreement with ICANN restricts Verisign's ability to raise prices for .com domains and expand into certain related businesses. The U.S. Department of Commerce maintains oversight of Verisign's .com registry operations through the Cooperative Agreement between the two parties. Verisign has renewal rights under its agreements with ICANN and DoC and a track record of renewing these agreements. Verisign's ratings are further constrained by modest scale, lack of revenue diversification and history of distributing the majority of internally generated cash flow towards share repurchases, including periodically debt-financed buybacks.

Moody's expects Verisign to have very good liquidity over the next 12-18 months, as reflected in the SGL-1 rating. The company's liquidity is supported by solid cash balances (including short-term investments) of $1.25 billion as of March 31, 2019, Moody's expectation for annual free cash flow above $650 million in 2019, and full availability under its $200 million revolving credit facility through April 2020. These cash sources are robust, compared to Moody's expectation of annual capital spending requirements of $50 million and no debt maturities or mandatory amortization until May 2023. The revolver is subject to two financial maintenance covenants consisting of a maximum debt-to-EBITDA leverage ratio of 2.5x and interest coverage of at least 3.0x. Moody's expects the company will have a significant cushion under both ratios over the next 12-18 months.

The stable outlook reflects Moody's anticipation of a moderate improvement in financial strength metrics in fiscal 2019 driven by low-single digit domain name growth and stable renewal rates. Moody's expects Verisign will generate over $800 million in EBITDA (Moody's adjusted) and more than $650 million in free cash flow in 2019.

While unlikely in the near term, Verisign's ratings could be upgraded if the company were able to maintain consistent organic topline growth and commit to clear and conservative financial policy. Moody's could downgrade Verisign's ratings if changes in the terms of the registry agreement with ICANN adversely affect Verisign's business, earnings decline, the company pursues more aggressive financial policies that lead to material weakening of the credit metrics, or Moody's expects Verisign's debt-to-EBITDA (Moody's adjusted) to be sustained above 3.5 times.

Verisign is a publicly-traded global provider of domain name registry services and internet infrastructure services. The company operates the authoritative directory of and/or back-end systems for all .com, .net, .cc, .tv, .gov, .jobs, .edu and .name domain names, among others. Verisign generated revenues of approximately $1.2 billion in the last twelve months ended March 31, 2019.

The principal methodology used in these ratings was Software Industry published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 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.

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.

Oleg Markin
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karen Nickerson
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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