Rating Action: Moody’s affirms Planview’s ratings on upsized term loans and acquisitions; outlook stable
Global Credit Research – 08 Jan 2021
New York, January 08, 2021 — Moody’s Investors Service, (“Moody’s”) affirmed Planview Parent, Inc.’s (“Planview”) ratings, including the B3 Corporate Family Rating (CFR), the B3-PD Probability of Default Rating (PDR), the B2 Senior Secured First Lien Credit Facilities (“First Lien Facilities”), and the Caa2 Senior Secured Second Lien Credit Facilities (“Second Lien Facilities”). The outlook is stable.
Planview intends to use the net proceeds of incremental term loans under the First Lien Facilities (including the $125 million Delayed Draw Term Loan) and the Second Lien Facilities, and cash equity from the company’s sponsors to fund the acquisitions of two companies. Sponsor cash equity will fund about 27% of the purchase price for the two acquisitions.
Pro forma for the two acquisitions, debt to EBITDA will be over 9x (latest twelve months September 30, 2020 and including adjustments to exclude purchase accounting effects, add back certain non-recurring costs, Moody’s adjusted) or just under 8x (including anticipated annual cost synergies).
Affirmations:
..Issuer: Planview Parent, Inc.
…. Corporate Family Rating, Affirmed B3
…. Probability of Default Rating, Affirmed B3-PD
….Senior Secured First Lien Credit Facilities (Revolver), Affirmed B2 (LGD3)
….Senior Secured First Lien Credit Facilities (Term Loan), Affirmed B2 (LGD3)
….Senior Secured First Lien Credit Facilities (Delayed Draw Term Loan), Affirmed B2 (LGD3)
….Senior Secured Second Lien Credit Facilities, Affirmed Caa2 (LGD5)
Outlook Actions:
..Issuer: Planview Parent, Inc.
….Outlook, Remains Stable
RATING RATIONALE
The acquisitions will add scale and diversification to Planview’s revenue base, increasing Planview’s exposure to customers outside of the company’s traditional large, enterprise customer base. This should provide Planview cross sell opportunities for its existing project and portfolio management (PPM) products. Given Planview’s existing scale, the company should be able to improve the cost structures of the two target companies, achieving cost synergies and increasing EBITDA.
Still, integration execution risks are material, since the acquisitions will increase Planview’s revenue base by more than one-third and will expand Planview into a new business segment, which is part of one of the target companies. The high proforma leverage, which exceeds 9x adjusted debt to EBITDA prior to anticipated cost synergies, magnifies the negative impact of any integration missteps that Planview may encounter.
The B3 CFR reflects financial leverage, which Moody’s expects will remain over 7.5x debt to EBITDA (Moody’s adjusted) over the near term, is very high given the execution risks integrating the acquisitions. Also weighing on the credit profile is Planview’s small scale, with proforma annual revenues of less than $400 million, and the relatively discretionary nature of Planview’s products compared to other enterprise software, such as enterprise resource planning (ERP) software. Although the project and portfolio management (PPM) industry is fragmented, with many niche competitors, the industry also includes large, diversified competitors, including Broadcom, Micro Focus, Atlassian, and Microsoft, which have greater financial resources and more diverse product lines than Planview. Product concentration results from the small revenue base, with project and portfolio management (PPM) products accounting for over three quarters of revenues, exposing Planview to revenue volatility should customer product preferences shift.
Given the private equity ownership, Moody’s anticipates that debt to EBITDA (Moody’s adjusted) will remain high, varying between 6x and 8x over the intermediate term, due to debt funded acquisitions or equity distributions following periods of deleveraging. The company’s financial policies are a key corporate governance consideration under Moody’s ESG framework.
Still, Planview benefits from a large base of recurring revenues, accounting for about 85% of revenues, and low capital intensity, which results in consistent free cash flow (FCF) generation. Further contributing to stability, revenues are diversified by industry and customer, with the top 10 customers accounting for less than 9% of revenues. Moody’s believes that Planview holds a strong niche market position in the PPM market, which indicates market acceptance of Planview’s product line and supports solid EBITDA margins. Moreover, increasingly complex workflows at large, diversified companies should provide an ongoing secular driver to Planview’s Portfolio Management and Work Management products, supporting revenue growth over the intermediate to long term.
Planview’s liquidity is good. Moody’s expects Planview to generate annualized FCF at least $40 million over the next 12-18 months. Moody’s expects that Planview will maintain at least $25 million of balance sheet cash and for the Senior Secured First Lien Revolver (“Revolver”), which is being upsized to $75 million from $65 million, to remain undrawn. Although there are no financial covenants governing the debt, the Revolver is subject to a usage based financial covenant, a first lien net leverage ratio (as defined), when utilization of the Revolver exceeds 35%. Moody’s expects that Planview will maintain a substantial cushion on the first lien net leverage covenant at least over the near term.
The stable rating outlook reflects Moody’s expectation that Planview’s revenues will grow organically in the low to mid-single digit range over the near term driven by end market demand across its portfolio of Portfolio Management and Work Management software. Moody’s expects margins will gradually improve over the next 12 to 18 months, reflecting revenue growth and the capture of cost synergies, such that the EBITDA margin will improve toward 38% (Moody’s adjusted) and debt to EBITDA will decline toward the upper 7x range (Moody’s adjusted). Given the strong translation of EBITDA into FCF, Moody’s anticipates that FCF to debt will approach the mid-single digits percent level (Moody’s adjusted).
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the integration execution risks and high financial leverage, an upgrade is unlikely in the near term. Over the intermediate term, Moody’s could upgrade Planview’s ratings if the company successfully integrates the two acquisitions, capturing the anticipated annual cost synergies. Planview should also profitably grow, with organic revenue growth sustained at least in the upper single digits percent level and EBITDA margins increasing toward 40% (Moody’s adjusted). Moody’s would expect that Planview would follow a financial policy balancing the interests of creditors and shareholders, maintaining leverage below 6.5x debt to EBITDA (Moody’s adjusted) and FCF to debt (Moody’s adjusted) above 5%.
Moody’s could downgrade Planview’s ratings if competitive or execution challenges result in revenue and EBITDA declining such that Moody’s adjusted leverage is sustained above 8x debt to EBITDA and FCF to debt (Moody’s adjusted) fails to achieve at least the low-single digits percent level.
The First Lien Facilities (Revolver, Term Loan, and the Delayed Draw Term Loan) are rated B2, one notch above the CFR, given their senior position in the capital structure, with a first lien on all assets, and loss absorption provided by the second lien debt. The Second Lien Facilities are rated Caa2, reflecting their effective subordination to the first lien debt.
Planview, headquartered in Austin, Texas is a provider of portfolio management and work management software across a broad set of enterprise customers. Planview will be owned by funds affiliated with private equity sponsors TPG, TA, and Thoma Bravo.
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.
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Terrence Dennehy, 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 Stephen Sohn 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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