LogMeIn has good liquidity comprising $60 million of cash at the close of its acquisition, access to an undrawn $250 million revolving credit facility, and Moody's estimates of free cash flow of at least $175 million in 2021.
Governance considerations, specifically, the company's tolerance for high financial risk and Moody's expectations for a shareholder-friendly financial strategy under the ownership of financial sponsors, constrain the rating.
The stable outlook reflects Moody's expectation for sustained improvements in profitability and cash generation driven by modest revenue growth and operating efficiencies.
The ratings are subject to review of the final terms of debt offerings. Moody's expects that additional debt issuance outside of the credit agreement to consummate the acquisition will be pari passi with the obligations under the first lien credit facilities.
The proposed terms of the credit agreements, which are not final, provide flexibility for transactions that could adversely affect creditors, including ability to incur substantial incremental debt; release a guarantee when a subsidiary is not wholly owned; ability to transfer assets to unrestricted subsidiaries subject to carve-out amounts; and ability to deploy portions of proceeds from asset sales for other than debt prepayment, if certain leverage-based thresholds are met.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is not expected over the next 12 to 24 months given Moody's expectations for elevated financial leverage over this period. Moody's could upgrade LogMeIn's rating over time if the company generates EBITDA growth in the mid-single digit percentages and commits to and maintains a more conservative financial profile, including total debt to EBITDA below 5x (total debt to EBITDA, incorporating Moody's standard analytical adjustments, change in deferred revenues and after expensing capitalized software development costs) and free cash flow in the high single digit percentages of total debt. Conversely, Moody's could downgrade LogMeIn's ratings if revenues decline, liquidity becomes weak, or operating performance falls short of expectations as a result of execution challenges or intense competition. The rating could be downgraded if Moody's expects free cash flow to remain below 5% of adjusted debt and leverage above the mid 6x level.
LogMeIn is a leading provider of unified communications and collaboration, identity and access management, and customer engagement and support solutions.
The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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 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.
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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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 www.moodys.com.
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.
Raj Joshi VP - Senior Credit Officer 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 Lenny J. Ajzenman 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
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