Auction.com, LLC — Moody’s affirms Auction.com’s B3 CFR and downgrades first lien secured rating to B3; outlook stable

Rating Action: Moody’s affirms Auction.com’s B3 CFR and downgrades first lien secured rating to B3; outlook stableGlobal Credit Research – 18 Jan 2022New York, January 18, 2022 — Moody’s Investors Service (“Moody’s”) affirmed Auction.com, LLC’s (“Auction.com”) B3 corporate family rating (“CFR”) and B3-PD probability of default rating (“PDR”). Concurrently, Moody’s downgraded Auction.com’s first lien secured rating to B3 from B2. The outlook is stable.In the third quarter of 2021, the company raised $300 million of non-convertible senior preferred equity and $500 million of convertible junior preferred equity. The proceeds were used to repay the existing $110 million senior secured second lien term loan, pay down the fully drawn $45 million revolver, fund a $500 million dividend to existing shareholders, and pay related fees and expenses. The remaining proceeds were added as cash to the balance sheet. The first lien secured term loan and revolver will no longer benefit from the subordinated debt cushion that the second lien debt provided and, as a consequence, the first lien instrument ratings are aligned with the B3 CFR.Governance considerations for this action include private equity ownership and a financial strategy prioritizing shareholders’ returns as evidenced by the use of proceeds largely being used to pay a $500 million dividend. These risks are somewhat offset by an improved liquidity position with cash being added to the balance sheet and the full paydown of the second lien debt and revolver, which will lead to a reduction in leverage and lower interest payments (approximate reduction of $1 million per month).Affirmations:..Issuer: Auction.com, LLC…. Corporate Family Rating, Affirmed B3…. Probability of Default Rating, Affirmed B3-PDDowngrades:..Issuer: Auction.com, LLC ….Senior Secured First Lien Bank Credit Facility, Downgraded to B3 (LGD3) from B2 (LGD3) Outlook Actions: ..Issuer: Auction.com, LLC ….Outlook, Remains Stable RATINGS RATIONALE In an effort to support homeowners hurt by the coronavirus outbreak, a series of federal and state programs were introduced since the onset of the pandemic that included forbearance and foreclosure relief. The foreclosure moratorium, which expired on July 31, 2021, and eviction moratoriums, which expired on October 2, 2021, reduced the transaction pipeline moving into Auction.com’s foreclosure auctions stage. Auction.com’s revenue, earnings and cash flows temporarily diminished materially as a result, but revenues have increased on a monthly basis by 50% in the fourth quarter of 2021. Despite the foreclosure moratorium expiration, Moody’s expects revenue and earnings pressure to continue until foreclosure volumes reach pre-pandemic levels again, which the company expects will be in the third quarter of 2022. Assuming a gradual volume recovery and return to pre-pandemic levels by the third quarter of 2022, Moody’s expects Debt/EBITDA will decline to below 8x by FYE2022. (All metrics cited include Moody’s standard adjustments unless noted otherwise. EBITDA and EBITA are also adjusted to include the expensing of capitalized software costs.) For FYE2023, Moody’s expects that a full year of pre-pandemic foreclosure volumes further supported by the continued secular shift of foreclosures to online auctions will result in revenue greater than FYE2019 levels and leverage declining below 5x.Auction.com’s B3 CFR reflects the company’s status as a category leader in a niche market and its consistent performance despite ongoing market pressures, balanced by its still high regulatory risk. Moody’s expects that the secular shift of foreclosures to online auctions and a return to pre-pandemic foreclosure volumes by the third quarter of 2022 will support profitability and earnings growth for Auction.com after a period of near-term earnings pressure. Governance risks that Moody’s considers in the company’s credit profile include an aggressive financial strategy that exposes the company to event risk and a high likelihood of periodic releveraging to support sponsor returns under private equity ownership.Moody’s views Auction.com’s liquidity as very good, largely supported by the company’s cash on hand ($285 million as of September 30, 2021) and a lack of funded debt maturities until 2024, but constrained by diminished cash flows that are not expected to recover to pre-pandemic level until at least late 2022. The company’s cash balances, internally generated cash flow from the real estate owned (“REO”) auction business in combination with cost savings, are more than sufficient to support possible operating losses and earnings volatility as foreclosure volumes recover to pre-pandemic levels. Auction.com’s debt service consist of $4.5 million first lien debt amortization as well as interest payments.The company’s $45 million revolver, which expires on September 29, 2022, was fully drawn as of September 30, 2021 but was fully repaid in January 2022. The revolver has a springing maximum first lien net leverage ratio of 6.75x when the revolver is more than 35% used. Given the generous EBITDA add-back in the covenant leverage ratio calculation, Moody’s expects the company will have sufficient cushion over the requirement in the next 12-18 months. Moody’s also anticipates that Auction.com will take the necessary steps to extend the revolver’s maturity ahead of its expiration date.The B3 rating of the senior secured first lien credit facility, consisting of a $45 million revolving credit facility expiring September 2022 and a $433 million term loan B due September 2024, reflects a PDR of B3-PD and a loss given default (“LGD”) of LGD3. The senior secured first lien rating is in line with the B3 CFR and reflects its position as the vast majority of debt in the capital structure. Moody’s does not include the $300 million of non-convertible senior preferred equity and $500 million of convertible junior preferred equity in the Loss Given Default assessment or for analytical credit metrics.The stable outlook reflects Moody’s expectation of a rebound in operating performance in 2022 as foreclosure volumes return to pre-pandemic levels. The stable outlook also incorporates Moody’s expectation that the company will maintain at least adequate liquidity, generate break-even to positive cash flow and maintain strong cash balances over the next 12 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if Auction.com demonstrates sustained Debt/EBITDA of under 4.0x (Moody’s adjusted) and sustained free cash flow-to-debt in the mid-single digit percentage range while maintaining good liquidity. Achieving a greater scale as measured by revenue and demonstrated ability to sustain profitable growth through real estate cycles would also be viewed positively for the ratings.The ratings could be downgraded if free cash flow is negative for an extended period of time without supporting liquidity or Moody’s no longer expects a significant rebound in operating performance and EBITDA to occur this year. A significant market share loss, debt financed shareholder distributions or acquisitions, or a loss of a significant customer could also likely lead to a downgrade.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Auction.com, LLC provides asset sale services for the US residential real estate markets. The company enables auction-based sales of bank-owned and foreclosure residential properties using either the company’s online transaction site or via live local auctions in counties throughout the US. The company is majority-owned by affiliates of Thomas H. Lee Partners L.P. and co-investors. Revenue for the twelve months ended September 30, 2021 was about $88 million.REGULATORY DISCLOSURESFor 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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.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 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. Sean Cray 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 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY’S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY’S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody’s Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​

Comments are closed.