articles Ratings /ratings/en/research/articles/200429-as-global-it-spending-falls-tech-ratings-pressure-rises-11452741 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List
COMMENTS

As Global IT Spending Falls, Tech Ratings Pressure Rises

COMMENTS

Economic Research: U.S. Real-Time Economic Data Continues To Paint A Mixed Picture

COMMENTS

Default, Transition, and Recovery: The Lowest-Rated Entities Account For 92% Of Corporate Defaults So Far This Year

COMMENTS

COVID-19 Impact: Key Takeaways From Our Articles

COMMENTS

From Bad To Worse: Global Air Traffic To Drop 60%-70% In 2020


As Global IT Spending Falls, Tech Ratings Pressure Rises

S&P Global Ratings significantly lowered its macroeconomic forecast for 2020, with global GDP falling 2.4%, the U.S. 5.2%, and the eurozone 7.3%, and China's GDP growth slowing to 1.2%. Concurrently, we revised our information technology (IT) spending expectation for 2020 to a 4% contraction, versus a 3% decline expected a month ago.

Table 1

Global Information Technology Spending Forecast
Actual Previous Forecast (March) New Forecast (April)
2019 2020E 2020E
Macro
Global Real GDP Growth 2.9% 1%-1.5% (2.4%)
- U.S. Real GDP Growth 2.3% (0.5%)-0.0% (5.2%)
- China Real GDP Growth 6.1% 2.7% - 3.2% 1.2%
- Eurozone Real GDP Growth 1.2% (1%)-(0.5%) (7.3%)
Revenues
Global IT Spending 1.5% (3.0%) (4.0%)
IT Services 3%-4% (2.0%) (3.0%)
Software 7%-9% 3%-5% 2.0%
Semiconductors (13.0%) (6.0%) (7.0%)
Network equipment 1%-3% (4.0%) (5.0%)
Mobile telecom equip 3%-5% (1.0%) (1.0%)
External Storage 1.0% (6.0%) (9.0%)
Shipments
PC (1.0%) (9.0%) (10.0%)
Smartphone (2.0%) (9.0%) (9.0%)
Server (6.0%) 0.0% (5.0%)
Printer N/A (8.0%) (12.0%)
E--Estimate. N/A--Not applicable. Source: S&P Global Ratings.

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly. Some tech companies are directly affected by policies such as shelter-in-place, lockdowns, and temporary closing of nonessential businesses. However, we believe the global recessionary pressure, deteriorating business confidence, and potential cutback on IT spending will have more meaningful effects on the businesses of the tech issuers we rate.

Chart 1

image

Chart 2

image

Evaluation Of Business Impact By Tech Subsegments

We divided the tech sector into subcategories and highlighted which areas we believe will be affected most by the COVID-19 pandemic, global recession, and further drop in IT spending (Table 2).

Table 2

image

IT budget cuts will likely hit enterprise hardware spending the hardest. Purchasing decisions on equipment upgrades--enterprise servers, storage systems, office printers and copiers, desktops, etc.--will likely be delayed and equipment life cycle will be lengthened. Associated implementation service or maintenance contracts will also be pushed out, translating to additional revenues lost. Despite a surge in demand for laptops, displays, and other home office accessories due to work-from-home arrangements for many professionals, we find this to only be temporary relief for certain tech product and component vendors. The grim reality is the uncertainty surrounding how much of the enterprise equipment sales will be permanently lost, rather than delayed, as the COVID-19 pandemic prompts companies to encourage more employees to work from home and accelerate workload migration to the cloud from on-premise data centers, hurting enterprise equipment spending.

We find rated issuers such as Dell, Hewlett-Packard Enterprise, NetApp Inc., HP Inc., and Xerox Corp. the hardest hit. Hardware vendors and semiconductor firms with high exposure to cloud data centers, on the other hand, can expect strong demand for their products as hyperscale cloud service providers such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform capital spending rises, even in a declining overall IT spending environment. Cloud data centers require substantial costs to operate and product upgrades that increase productivity. Lower operating costs are essential to profitability improvements. Beneficiaries include Seagate Technology Inc., Intel, and Nvidia.

Revenue could also decline significantly for tech vendors and service providers with high exposure to auto, industrial, oil and gas, and retail end markets, and small to midsize businesses (SMB).

S&P Global Ratings' latest forecast calls for global light vehicle sales to decline about 15% in 2020. A majority of global auto manufacturers have shut down production at most of their plants in Europe and the U.S. Even when production resumes, utilization rates will be slow to ramp up, and demand for autos will likely take a hit as consumers consider delaying high-ticket purchases. Semiconductor firms and component vendors such as NXP Semiconductors N.V., Texas Instruments Inc., TE Connectivity Ltd., and many others have benefited from rising electronic content in autos. We expect sharp revenue declines at these firms and part vendors in 2020, albeit at a rate less than auto unit sales drop given the rising electronic content in auto. Tech manufacturers and semiconductor firms such as Apple Inc., Pitney Bowes Inc., Broadcom, and Qorvo Inc. can expect their smartphone and SMB-related businesses to suffer this year.

Impact to companies will vary as we view SMB-focused businesses, such as Pitney Bowes' mail-metering systems, could be harder hit as clients are expected to be under duress and could go out of business. Sales from retail-focused customers for issuers such as VeriFone Inc. and Elo Touch Solutions Inc. will likely drop during government-enforced lockdowns and temporary business closures. On the other hand, we view iPhone sales as mostly delayed, rather than lost, given Apple's customer brand loyalty and generally higher discretionary income profile.

IT service providers such as International Business Machines Corp., Accenture PLC, and DXC Technology Co. will feel the pain as well, with lockdowns and customers' potential IT budget cuts. Consulting, IT services, or sales motions that require physical presence at customer locations will be difficult even after movement restrictions are lifted. Customers' IT budgets will certainly favor mission-critical or necessary spending while discretionary or growth-oriented projects are shelved until business confidence returns. Projects that involve large-scale implementation, including enterprise resource planning, will also be delayed given the significant costs involved. As IT service providers tend to have high revenue-generating headcount, we believe there will be staff reductions amid business uncertainties to stave off lower utilization rates and lower profitability.

Vendors that help customers accelerate software automation or provide network security will have large IT budget allocations. From a business model perspective, downside revenue risk to software companies that have fully adopted software-as-a-service or have high recurring revenues should be limited. However, seat-based subscription revenues could be vulnerable to customer headcount reductions. We anticipate other software companies that rely on license sales and implementation services to suffer material revenue cuts because of the significant capital outlays involved. During stressful times, we believe customers will likely seek more favorable terms with software providers, such as pricing concessions, extended payment terms, or contract downsizing for contract renewals for longer commitments. These modifications could have considerable near-term impact on providers' working capital and revenues.

Rating Actions Taken From Feb. 1-Apr. 24

North America

We took 44 rating actions in the North American tech sector from Feb. 1 to April 24 related to the COVID-19 pandemic and the current global economic downturn. Investment-grade U.S. tech issuers have fared relatively better than those in other nonfinancial corporate sectors. Investment-grade tech issuers prefer to operate with lower leverage or, in some cases, net cash positions, and are better positioned to withstand business cyclicality or exogenous shocks. Many also generate sizable free operating cash flows and can pull back on shareholder returns to preserve liquidity and their overall financial risk profiles.

Besides cash and investment balances and revolver availability, U.S. investment-grade tech companies such as Oracle Corp. (A+/Negative), Intel Corp. (A+/Stable), Nvidia Corp. (A-/Stable), Analog Devices Inc. (BBB/Stable), Hewlett Packard Enterprise Co. (BBB/Stable), and Broadcom Inc. (BBB-/Stable) have accessed the debt capital markets in times of stress to further shore up liquidity and minimize risk of potential shortfalls to their research and development and capital spending during an extended global economic deterioration. Thus far, we've only taken two negative rating actions on investment-grade rated issuers--revising the rating outlook to negative on Corning Inc. (BBB+/Negative), because of rising leverage and a tough business environment in the display and fiber optics areas, and on VMware Inc. (BBB-/Negative), given its group credit profile is closely tied to Dell Technologies Inc. (BB+/Negative).

All other rating actions were on speculative-grade issuers, which compose about 76% of our North American tech sector coverage (156 out of 205 total). We lowered our ratings on 22 North American issuers, of which six were downgraded to the 'CCC' category, and revised our rating outlook to negative or placed the rating on CreditWatch with negative implications on another 20 speculative-grade issuers. Most of these actions were taken as a result of anticipated sustained increase in leverage or liquidity concerns, such as significant working capital outflow or restrictions on revolver access. Unlike their investment-grade counterparts, speculative-grade issuers often find the debt capital market inaccessible in times of stress.

Not until the first week of April was NCR Corp. (BB-/Stable) able to issue notes at a substantial price premium. Many issuers in the 'B' category still cannot raise debt in the current capital market environment and will rely on revolver availability that could become restrictive when earnings are expected to drop precipitously.

That said, our ratings are unchanged so far on many 'B-' rated software issuers, such as Epicor Holdings Corp. and Applied Systems Inc., with high leverage as a result of the leveraged buyout boom over the past five years. Their highly recurring revenue bases and positive working capital characteristics make for a desirable business model, especially in the current difficult economic environment.

Europe, the Middle East, and Africa

We took 10 rating actions in the region related to the COVID-19 pandemic and global economic downturn. All were on speculative-grade issuers, with eight downgrades including two to the 'CCC' category and one to 'SD' (selective default) as a result of a distressed exchange, before we raised it back into the 'CCC' category after completion.

Most of the actions were taken because of weakened liquidity and credit metrics. In particular, we lowered our ratings on Turkish white goods and electronics maker Vestel Elektronik Sanayi Ve Ticaret A.S. to 'SD' after it postponed payment of financial obligations when faced with tight liquidity.

The majority of our rating actions were driven by exposure to customers in sectors affected by COVID-19, including payment processers exposed to tourism (Franklin Ireland Topco Ltd. and Global Blue Acquisition B.V.) and retail shutdowns (Nets Topco 3 S.a r.l. and Paysafe Group Holdings II Ltd.), and hardware equipment manufacturers with direct exposure to affected industrial sectors and maritime (AI Ladder (Luxembourg) Subco S.a.r.l. and Navico Group AS, respectively).

Asia-Pacific

We took no rating actions in the region related to the COVID-19 pandemic and current global economic downturn, partly because majority of issuers in the region are rated in investment-grade categories with high liquidity and leverage buffer. Nonetheless, there could be some negative actions on speculative-grade issuers as mounting business and refinancing pressures could deplete limited rating headroom in the coming quarter or two. For a few investment-grade issuers with negative rating outlooks and high exposure to hardest hit end markets such as auto and consumer discretionary, it may be difficult to maintain cash flow and leverage required to sustain the current ratings if a market recovery comes slower and flatter than our current projection.

Table 3

Global Tech Sector Rating Actions From COVID-19
Feb. 1 to April 24, 2020
Date Company Subsector Region Current Rating Prior Rating Reason
Rating actions within 'CCC' category or lower
3/20/2020

SuperMoose Newco Inc.

Software - application specific North America CCC+/Negative B-/Negative Liquidity concerns
3/26/2020

Cvent Inc.

Software - application specific North America CCC+/Wach Dev B-/Stable Liquidity concerns
3/27/2020 Optiv Inc. Services - value-added reseller North America SD CCC+/Stable Distressed exchange
3/31/2020

Digital River Inc.

Services - payment processor North America CCC+/Stable B-/Negative Liquidity concerns
4/2/2020 Optiv Inc. Services - value-added reseller North America CCC/Negative SD Completion of distressed exchange
4/3/2020

Natel Engineering Co. Inc.

Hardware - electonic manufacturing services North America CCC+/Negative B/Negative Likelihood of distressed exchange
4/7/2020

Transact Holdings Inc.

Software - application specific North America CCC+/Negative B-/Stable Liquidity concerns
4/8/2020

Zellis Holdings Ltd.

Software - application specific EMEA CCC+/Stable B-/Negative Liquidity concerns
4/10/2020

Vestel Elektronik Sanayi Ve Ticaret A.S.

Hardware - electonic manufacturing services EMEA SD CCC+/Stable Distressed exchange
4/14/2020

Navico Group AS

Hardware - specialty EMEA CCC-/Negative CCC/Negative Liquidity concerns
4/15/2020

Finastra Ltd.

Software - application specific EMEA CCC+/Negative B-/Stable Liquidity concerns
4/16/2020

Priority Holdings LLC

Services - payment processor North America CCC+/Negative B/Negative Liquidity concerns
4/17/2020

Vestel Elektronik Sanayi Ve Ticaret A.S.

Hardware - electonic manufacturing services EMEA CCC-/Negative SD Completion of distressed exchange
Downgraded to 'B-'
3/17/2020

Verifone Systems Inc.

Hardware - specialty North America B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
3/23/2020

Crackle Intermediate Corp.

Hardware - specialty North America B-/Negative B/Negative Shelter-in-place and lockdowns leading to worsening credit metrics
3/31/2020

Cohu Inc.

Semiconductor - semi capital equipment North America B-/Negative B/Stable Shelter-in-place and lockdowns leading to worsening credit metrics; supply chain disruptions
4/3/2020

Franklin Ireland Topco Ltd.

Services - payment processor EMEA B-/Negative B/Negative Shelter-in-place and lockdowns leading to worsening credit metrics
4/6/2020

Blackhawk Network Holdings Inc.

Software - application specific North America B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
4/6/2020

RP Crown Parent LLC

Software - enterprise North America B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
4/10/2020

First American Payment Systems L.P.

Services - payment processor North America B-/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
4/14/2020

Shift4 Payments LLC

Services - payment processor North America B-/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
4/21/2020

Mitel Networks (International) Ltd

Hardware - specialty North America B-/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
4/23/2020

Nets Topco 3 S.a r.l.

Services - payment processor EMEA B-/Negative B/Developing Shelter-in-place and lockdowns leading to worsening credit metrics
4/23/2020

Paysafe Group Holdings II Ltd.

Services - payment processor EMEA B-/Stable B/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
Downgraded to 'B'
3/12/2020

Natel Engineering Co. Inc.

Hardware - electonic manufacturing services North America B/Negative B+/Stable Macroeconomic factors leading to worsening credit metrics
4/2/2020

Elo Touch Solutions Inc.

Hardware - specialty North America B/Negative B+/Negative Shelter-in-place and lockdowns leading to worsening credit metrics
Downgraded to 'B+'
2/21/2020

Plantronics Inc.

Hardware - specialty North America B+/Stable BB-/Stable Macroeconomic factors leading to worsening credit metrics
3/30/2020

II-VI Inc.

Semiconductor - analog North America B+/Stable BB-/Stable Macroeconomic factors leading to worsening credit metrics
4/9/2020

Global Blue Acquisition B.V.

Services - payment processor EMEA B+/Stable BB-/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
Downgraded to 'BB-'
4/1/2020

Celestica Inc.

Hardware - electonic manufacturing services North America BB-/Stable BB/Negative Macroeconomic factors leading to worsening credit metrics
4/7/2020

NCR Corp.

Hardware - specialty North America BB-/Stable BB/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
Outlook revised or placed on CreditWatch negative
3/18/2020

Banff Parent Inc.

Software - IT infrastructure North America B-/Watch Neg B-/Stable Macroeconomic factors leading to worsening credit metrics
3/23/2020

Electronics for Imaging Inc.

Hardware - specialty North America B-/Negative B-/Positive Macroeconomic factors leading to worsening credit metrics
3/25/2020

QBS Parent Inc.

Software - application specific North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
3/25/2020

Diebold Nixdorf Inc.

Hardware - specialty North America B-/Negative B-/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
3/30/2020

Project Silverback Holding Corp.

Software - application specific North America B-/Negative B-/Stable Liquidity concerns
4/6/2020

Solera Parent Holding LLC

Software - application specific North America B-/Negative B-/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
4/9/2020

Aspen Jersey Topco LLC

Software - application specific North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
4/13/2020 Project Boost Puchaser LLC Software - application specific North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
4/14/2020

Eclipse Midco Inc.

Software - enterprise North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
4/16/2020

Starfish Holdco LLC

Software - IT infrastructure North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
4/20/2020

Procera I L.P.

Software - IT infrastructure North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
4/21/2020

CCC Information Services Inc.

Software - application specific North America B-/Stable B-/Positive Shelter-in-place and lockdowns leading to worsening credit metrics
4/21/2020

Veritas Bermuda Ltd.

Software - IT infrastructure North America B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
4/24/2020

Ensono L.P.

Services - IT services North America B-/Stable B-/Positive Liquidity concerns
3/30/2020

Corsair Group (Cayman) L.P.

Hardware - specialty North America B/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
4/3/2020

CommScope Holding Co. Inc.

Hardware - network equipment North America B/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
4/16/2020

AI Ladder (Luxembourg) Subco S.a.r.l.

Hardware - specialty EMEA B/Negative B/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
4/7/2020

Ceridian HCM Holding Inc.

Software - application specific North America B+/Negative B+/Stable Macroeconomic factors leading to worsening credit metrics
4/22/2020

Plantronics Inc.

Hardware - specialty North America B+/Negative B+/Stable Macroeconomic factors leading to worsening credit metrics
3/30/2020

Dell Technologies Inc.

Hardware - enterprise North America BB+/Negative BB+/Stable Macroeconomic factors leading to worsening credit metrics
4/1/2020

Pitney Bowes Inc.

Hardware - specialty North America BB+/Negative BB+/Stable Macroeconomic factors leading to worsening credit metrics
3/30/2020

VMware Inc.

Software - IT infrastructure North America BBB-/Negative BBB-/Stable Rating closely linked to that on Dell Technologies Inc.
2/20/2020

Corning Inc.

Hardware - specialty North America BBB+/Negative BBB+/Stable Macroeconomic factors leading to worsening credit metrics
EMEA--Europe, the Middle East, and Africa. Source: S&P Global Ratings.

Chart 3

image

Chart 4

image

Brace For Potentially More Negative Rating Actions

We assume a steep decline in second-quarter economic activity and only a gradual recovery in the second half as business confidence rebuilds. But there is further downside risk if the U.S. and other countries are slow to contain the coronavirus spread and delay lifting containment measures, leading to a deeper economic recession and a likely shallower recovery path. In such a scenario, rated issuers, including investment-grade, with limited cushion could be vulnerable to negative rating actions.

Below are companies with negative outlooks that are more susceptible to a downgrade in an extended economic slump (Table 4):

Table 4

Global Tech Sector Issuers With Negative Rating Outlook Or Placed on CreditWatch
Company Region Current Rating/Outlook Subsector
Hardware

Panasonic Corporation

APAC A-/Negative Hardware - specialty

Corning Inc.

North America BBB+/Negative Hardware - specialty

Tech Data Corp.

North America BBB-/Watch Neg Hardware - distributor

Dell Technologies Inc.

North America BB+/Negative Hardware - enterprise

Western Digital Corp.

North America BB+/Negative Hardware - enterprise

Pitney Bowes Inc.

North America BB+/Negative Hardware - specialty

Xerox Holdings Corp.

North America BB+/Negative Hardware - specialty

Nokia Corp.

EMEA BB+/Negative Hardware - network equipment

Anixter International Inc.

North America BB/Watch Neg Hardware - network equipment

Plantronics Inc.

North America B+/Negative Hardware - specialty

CommScope Holding Co. Inc.

North America B/Negative Hardware - network equipment

Elo Touch Solutions Inc.

North America B/Negative Hardware - specialty

Corsair Group (Cayman) L.P.

North America B/Negative Hardware - specialty

AI Ladder (Luxembourg) Subco S.a.r.l.

EMEA B/Negative Hardware - specialty

Crackle Holdings L.P.

North America B-/Negative Hardware - specialty

Diebold Nixdorf Inc.

North America B-/Negative Hardware - specialty

Electronics for Imaging Inc.

North America B-/Negative Hardware - specialty

Mitel Networks (International) Ltd

North America B-/Negative Hardware - specialty

Riverbed Parent Inc.

North America CCC+/Negative Hardware - network equipment

Natel Engineering Holdings Inc.

North America CCC+/Negative Hardware - electonic manufacturing services

Navico Group AS

EMEA CCC+/Negative Hardware - specialty

Curvature Inc.

North America CCC/Negative Hardware - value-added reseller

Vestel Elektronik Sanayi Ve Ticaret A.S.

EMEA CCC-/Negative Hardware - electonic manufacturing services
Semiconductor

Renesas Electronics Corporation

APAC BBB-/Negative Semiconductor - analog/FPGA/discrete

TTM Technologies Inc.

North America BB/Negative Semiconductor - components

Xperi Corp.

North America BB-/Watch Dev Semiconductor - analog

UTAC Holdings Ltd.

APAC B/Negative Semiconductor - semi capital equipment

Cohu Inc.

North America B-/Negative Semiconductor - semi capital equipment
Services

International Business Machines Corp.

North America A/Negative Services - enterprise IT services

DXC Technology Co.

North America BBB/Negative Services - enterprise IT services

Rakuten Inc.

APAC BBB-/Negative Services - internet based services

Trade Me Group Ltd.

APAC B-/Negative Services - internet based services
Software

Oracle Corp.

North America A+/Negative Software - enterprise

VMware Inc.

North America BBB-/Negative Software - IT infrastructure

Micro Focus International PLC

EMEA BB-/Negative Software - enterprise

21Vianet Group Inc.

APAC B+/Negative Software - IT infrastructure

Ceridian HCM Holding Inc.

North America B+/Negative Software - application specific

Rocket Software Inc.

North America B/Negative Software - IT infrastructure

Compuware Corp.

North America B/Watch Neg Software - IT infrastructure

Nets Topco 3 S.a r.l.

EMEA B/Negative Services - payment processor

Precise Midco B.V.

EMEA B/Negative Software - enterprise

Aspen Jersey Topco LLC

North America B-/Negative Software - application specific

Project Boost Purchaser LLC

North America B-/Negative Software - application specific

Project Silverback Holding Corp.

North America B-/Negative Software - application specific

QBS Parent Inc.

North America B-/Negative Software - application specific

Solera Parent Holding LLC

North America B-/Negative Software - application specific

Eclipse Midco Inc.

North America B-/Negative Software - enterprise

Banff Parent Inc.

North America B-/Watch Neg Software - IT infrastructure

Procera I L.P.

North America B-/Negative Software - IT infrastructure

Starfish Holdco LLC

North America B-/Negative Software - IT infrastructure

Veritas Bermuda Ltd.

North America B-/Negative Software - IT infrastructure

First American Payment Systems L.P.

North America B-/Negative Services - payment processor

Shift4 Payments LLC

North America B-/Negative Services - payment processor

Franklin Ireland Topco Ltd.

EMEA B-/Negative Services - payment processor

Idemia France SAS

EMEA B-/Negative Software - IT infrastructure

Triton UK Midco Ltd.

EMEA B-/Negative Software - application specific

Priority Holdings LLC

North America CCC+/Negative Services - payment processor

Transact Holdings Inc.

North America CCC+/Negative Services - payment processor

SuperMoose Newco Inc.

North America CCC+/Negative Software - application specific

Finastra Ltd.

EMEA CCC+/Negative Software - application specific

Cvent Inc.

North America CCC+/Watch Dev Software - application specific

Optiv Inc.

North America CCC/Negative Software - value-added reseller

Evergreen Skills Lux S.ar.l.

North America CCC-/Negative Software - application specific
APAC--Asia-Pacific. EMEA--Europe, the Middle East, and Africa. FPGA--Field-programmable gate array. Source: S&P Global Ratings.

Many speculative-grade rated issuers have smaller scale, operations in highly competitive markets against larger players, and weaker financial positions. Their cost structures are also typically less flexible to blunt the impact from declining revenues. Profitability, cash flow generation, and leverage will be weakened on a more sustained basis, which is why there were more downgrades in the speculative-grade area. We rate 88 software companies in the 'B' category. Although many software companies have high recurring revenue characteristics and collect payment in advance of products, we do not believe they are immune from COVID-19 or global recession-related impact and downgrade pressures, especially those with high leverage or that rely on positive working capital for liquidity needs. Working capital as a source of liquidity has proven to be challenging in the current environment.

Tech issuers we believe are vulnerable to nonpayment, likely to undertake an exchange offer or similar restructuring that we classify as distressed, or face at least a 1-in-2 likelihood of default will be rated in the 'CCC' category.

Given their typically larger scale, investment-grade issuers tend to be more flexible to further optimize costs. In an extended global economic slump, we envision severe business deterioration for certain hardware vendors or semiconductor firms exposed to vulnerable end markets. We would consider a downgrade if we believe their longer-term growth prospects will be impaired or we do not believe they have levers to pull to maintain their financial risk profiles. These include reducing suspended shareholder returns or using proceeds from divestitures for debt repayment.

This report does not constitute a rating action.

Primary Credit Analyst:David T Tsui, CFA, CPA, San Francisco (1) 212-438-2138;
david.tsui@spglobal.com
Secondary Contacts:Andrew Chang, San Francisco (1) 415-371-5043;
andrew.chang@spglobal.com
Mark Habib, Paris (33) 1-4420-6736;
mark.habib@spglobal.com
Raymond Hsu, CFA, Taipei (8862) 8722-5827;
raymond.hsu@spglobal.com
Research Contributor:Jeet Ganatra, New York;
jeet.ganatra1@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.