Approximately $850 million of new debt rated
New York, July 24, 2018 -- Moody's Investors Service ("Moody's") assigned a B2 rating to EagleView Technology Corporation's ("EagleView" or the "company") proposed first-lien credit facilities, consisting of a $535 million senior secured term loan and $85 million senior secured revolving credit facility (RCF), and Caa2 rating to the new $230 million second-lien term loan facility. In connection with this rating action, Moody's affirmed EagleView's B3 Corporate Family Rating (CFR) and upgraded the Probability of Default Rating (PDR) to B3-PD from Caa1-PD to reflect our use of a 50% mean family recovery rate for issuers with a dual-class bank debt capital structure. The rating outlook is stable.
Proceeds from the new credit facilities plus capital raises from a new $200 million PIK preferred equity offering and significant cash equity investment from Clearlake Capital Group, L.P. ("Clearlake") will be used to retire EagleView's existing credit facilities (consisting of a $332 million outstanding first-lien term loan and $20 million revolver), fund a cash distribution totaling more than $1 billion to Vista and other shareholders, and pay transaction fees.
Following is a summary of today's rating actions:
...Issuer: EagleView Technology Corporation
Ratings Assigned:
.$85 Million Senior Secured First-Lien Revolving Credit Facility due 2023, B2 (LGD3)
.$535 Million Senior Secured First-Lien Term Loan due 2025, B2 (LGD3)
.$230 Million Senior Secured Second-Lien Term Loan 2026, Caa2 (LGD5)
Rating Upgraded:
.Probability of Default Rating, to B3-PD from Caa1-PD
Rating Affirmed:
.....Corporate Family Rating, B3
Outlook Actions:
.....Outlook, Stable
The assigned ratings are subject to review of final documentation and no material change to the terms and conditions of the transaction as advised to Moody's. We will withdraw all ratings and LGD assessments on the existing revolving credit facility and first-lien term loan at transaction close.
RATINGS RATIONALE
EagleView's B3 CFR reflects its small revenue base and high pro forma financial leverage of 7.7x total debt to EBITDA (including Moody's standard adjustments and our estimates for add-backs for certain non-recurring expenses and run rate cost savings), significantly higher than the current 3.9x (Moody's adjusted) as of 31 March 2018. Although the contemplated transaction will more than double EagleView's gross debt, there is sufficient capacity at the B3 level to absorb the higher debt load given the company's rapidly expanding EBITDA, which more than doubled over the past three years. Though pro forma leverage is high and currently above the 6.6x median for B3-rated issuers, we believe EagleView's business model can accommodate a more leveraged capital structure due to the strong growth trajectory and history of increasing positive free cash flow generation on an annual basis.
The B3 rating also embeds EagleView's lack of meaningful international diversification and exposure to the cyclical housing market. The potential for deep-pocketed competitors that could enter EagleView's markets with emerging imagery technologies, analytics and/or integrated offerings is a longer-term concern. Given the attractive high margin services-based revenue and strong EBITDA growth prospects, we view EagleView's private equity ownership as a latent risk that could lead to more liberal financial policies such as additional sizable debt-funded cash distributions to the sponsors (analogous to the contemplated dividend recapitalization) or M&A that could produce volatile credit metrics.
Despite its small size, EagleView is the leading provider of high resolution aerial imagery and 3D measurement software solutions to governments, property & casualty (P&C) insurance carriers and residential contractors with very little direct competition, which buttresses the B3 rating. The rating also benefits from EagleView's long-standing customer relationships characterized by its preferred vendor status, high retention rates, increasing penetration in customer accounts and highly visible reoccurring revenue streams supported by multi-year contracts in the government business. Low production costs for image capture combined with its patented technology and extensive image library create barriers to entry and help establish a scalable business model with operating leverage. The B3 CFR also takes into account our expectation for continued strong revenue and EBITDA growth as well as positive annual free cash flow generation as new products with higher price points are introduced to meet client demand.
Rating Outlook
The stable rating outlook reflects our view that the US economy will continue to grow modestly, which should support organic revenue growth in the 10-20% range and strong EBITDA expansion, enabling EagleView to rapidly de-lever to around 6x total debt to EBITDA (Moody's adjusted) over the next 12-18 months, barring further leveraging events.
What Could Change the Rating -- Up
- Revenue growth and EBITDA margin expansion leading to consistent and increasing positive free cash flow generation and sustained reduction in total debt/EBITDA below 6.0x (Moody's adjusted).
- Free cash flow to adjusted debt of at least 5% (1% pro forma as of LTM 31 March 2018).
- EagleView would also need to increase scale, maintain a good liquidity position and exhibit prudent financial policies.
What Could Change the Rating -- Down
- Financial leverage as measured by total debt to EBITDA (Moody's adjusted) sustained above 8.5x (7.7x pro forma as of LTM 31 March 2018).
- EBITDA growth is insufficient to maintain positive free cash flow generation.
- Market share erosion, services revenue deterioration, weakened liquidity or if EagleView engages in leveraging acquisitions or significant shareholder distributions.
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Bothell, Washington, EagleView Technology Corporation is a leading provider of 3D aerial measurement services to the government, property & casualty insurance and residential construction markets. The company has over 550 employees and operates primarily in the US. Revenue totaled $237 million for the twelve months ended 31 March 2018.
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.
Gregory A. Fraser, CFA
Vice President - Senior 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
John Diaz
MD - Corporate Finance
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