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timber1956

7,424 Posts.

152

12/03/18

05:02

Post #: 31677181
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Originally posted by Westwind ↑

Further to last years post (#:26123010), it looks like Eagleview/Pictometry (Nearmap's main competitor in USA) has not done much to strengthen its balance sheet, and has actually been subjected to a credit rating downgrade by Moodys in the second half of 2017:
-------------------------------------------------------------
Rating Action:
Moody's downgrades EagleView's first-lien credit facility rating to B3 following term loan upsizing and repayment of second-lien facility; B3 CFR and stable outlook unchanged
Global Credit Research - 21 Sep 2017
Approximately $356 million of rated debt affected
New York, September 21, 2017 -- Moody's Investors Service ("Moody's") downgraded EagleView Technology Corporation's ("EagleView" or the "company") first-lien credit facilities rating to B3 from B2 and Probability of Default Rating (PDR) to Caa1-PD from B3-PD. Moody's also withdrew the Caa2 rating on the second-lien term loan facility. EagleView's B3 CFR and stable outlook remain unchanged.
Following is a summary of today's rating actions:
Ratings Downgraded:
.Probability of Default Rating to Caa1-PD from B3-PD
.$ 20 Million Senior Secured Revolving Credit Facility due 2020 to B3 (LGD-3) from B2 (LGD-3)
.$336 Million (originally $240 Million) Senior Secured First-Lien Term Loan due 2022 to B3 (LGD-3) from B2 (LGD-3)
Rating Withdrawn:
.$100 Million Senior Secured Second-Lien Term Loan 2023 -- Caa2 (LGD-5)
Ratings Unchanged:
.....Corporate Family Rating -- B3
.....Outlook, remains Stable
RATINGS RATIONALE
The rating actions follow EagleView's recent refinancing of its debt capital structure in which it increased the existing first-lien term loan by $100 million to $336 million and used the proceeds to repay the second-lien term loan. The downgrades result from elimination of the second-lien term loan from the debt capital structure, which was structurally subordinated and provided support to the first-lien credit facilities under Moody's Loss Given Default (LGD) framework. Because the second-lien debt would absorb a greater proportion of losses in a distressed scenario, it was rated Caa2, two notches below the CFR. However, with its removal, the first-lien credit facilities would have to absorb those losses, resulting in a lower rating and higher LGD rate. The downgrade of the PDR is driven by our use of a 65% mean family recovery rate for issuers with an all first-lien bank debt capital structure.
EagleView's B3 CFR reflects its small revenue base and moderately high financial leverage of roughly 5.0x total debt to EBITDA (Moody's adjusted), absence of consistent positive free cash flow generation, 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 is also a longer-term concern. There is a possible risk from private equity sponsor ownership that could lead to more liberal financial policies, in our opinion, such as dividend payments to the sponsor, given EagleView's attractive high margin services-based revenue and strong EBITDA growth prospects. However, we do not view this as a near-term risk.
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 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 help establish a scalable business model with operating leverage.
Rating Outlook
The stable rating outlook reflects our view that the US economy will continue to grow modestly to support organic revenue growth over the rating horizon in the high-single to low-double digit range with 35-40% adjusted EBITDA margins, offset by negative (albeit improving) free cash flow generation.
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% (-2.4% as of LTM 30 June 2017).
> 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 sustained above 8.5x (Moody's adjusted).
> 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.
--------------------------------------------------------------------------------------------
I wonder if Moodys are monitoring Nearmap's growth when it says that Eagleview has "very little direct competition" even though they acknowledge they would be vulnerable to competitors with emerging new technologies. I am sure Nearmap is eating into Eagleview's market share. It would be nice to see some discussion of Eagleview revenue over the last couple of years in future Moody reports. I have tried to find such info from other sources but it is being hidden behind the PE curtain, unless we want to start paying rating organisations for the detail.
I am sure Nearmap is causing Eagleview some real angst.

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EagleView was sold off to private equity (Vista Equity Partners) in 2013, which explains the stupid amount of debt.

Whether private equity managements makes them a more or less dangerous competitor for NEA, I can only guess.

NEA Price at posting: 99.5¢ Sentiment: Hold Disclosure: Held
1 Upvote

0 Great analysis

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