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A Long Road To Recovery Would Strain Liquidity For Financial Sponsor-Owned Tech Issuers

The COVID-19 pandemic and related recession has put stress on all U.S. corporate issuers, but those owned by financial sponsors may be even more vulnerable than other corporate issuers due to their lower credit ratings and weaker credit metrics. As information technology (IT) spending continues to decline as a result of weaker business confidence and as customers reassess their IT budgets, we believe credit metrics could worsen for most issuers in 2020. Additionally, liquidity has become a key concern for some issuers. These factors have led us to take negative rating actions on about one-third of our financial sponsor-owned companies (29 of 83, 18 of which were due to liquidity concerns and 11 of which were due to weaker credit metrics) from Feb. 1, 2020, to June 9, 2020. Here, we focus on the 83 U.S. tech issuers that are financial sponsor-owned.

Most financial sponsor-owned companies entered the 2020 recession with very highly leveraged balance sheets and generally low cash flow-to-debt metrics. The weak credit metrics are a byproduct of years of rising EBITDA multiples/valuations, which caused higher purchase prices for leverage buyout (LBO) deals and acquisitions, leading to more debt on balance sheets. We believe investors have not shied away from paying higher prices for tech companies over the years (in particular for software companies, which make up about 75% of our rated financial sponsor-owned universe) due to growing digitalization trends supporting growth prospects, highly recurring business models, and positive free operating cash flow (FOCF) characteristics helped by light capital intensity.

Median starting leverage after a buyout increased 0.7x from 2016 to 2019. The combination of smaller scale and higher financial risk tolerance has resulted in more 'B-' ratings than 'B' ratings for new financial sponsor-owned tech issuers.

Chart 1

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The median issuer size of tech LBOs has also declined over the past few years, as measured by companies' management-adjusted EBITDA figures.

Chart 2

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Leverage has remained high for tech issuers, even years after their LBOs, because sponsors have prioritized other issues over debt repayment, such as reinvesting into the business, distributing dividends, and making tuck-in acquisitions. For issuers that came to market last year, financial sponsors have touted their plans for growth and sizable cost reductions such that credit metrics would significantly improve over the next one to two years. We believe credit metric improvement through revenue growth is an uphill battle, given the current macroenvironment and our expectation for IT spending to decline in 2020 (See "As Global IT Spending Falls, Tech Ratings Pressure Rises," published April 29, 2020).

High leverage limits companies' business flexibilities. The longer the recovery path, the greater the chances of liquidity concerns. In the scenario that recovery is long, companies might not be able to replace a normal level of customer churn with new customers, could face elevated customer churn as their customers cut IT expenses or enter financial distress, could be forced to lower pricing, and could experience abnormal working capital uses of cash as payments are delayed.

Unprecedented measures from the U.S. government and Federal Reserve will be sure to mitigate the effects of the sharp decline in economic activity due to COVID-19, but the path to recovery remains uncertain both in terms of timing and trajectory. Our current base case uses government authorities' estimates of the pandemic peaking around midyear, with lockdown measures in place through at least June in the U.S., and a gradual lifting and reopening of economic activities in stages through the third quarter as consumer demand revives and firms rehire workers, fill back orders, and restock inventories. However, we've already seen bouts of COVID-19 recurrences in countries such as China and South Korea and within states in the U.S., after they began reopening their economies. Until an effective treatment or vaccine is in place, significant uncertainties surround the resolution of the pandemic and its economic effects.

Rating Actions On Many Financial Sponsor-Owned Tech Companies Have Been Negative

Since the outbreak of COVID-19 and its related macroeconomic disruptions, our rating actions on financial sponsor-owned U.S. tech issuers have tilted decidedly negative. The 'CCC' category has grown to seven issuers from four prior to the pandemic. The number of issuers rated 'B-' with a negative outlook has grown to 11 from two. The primary rationales behind our 29 negative actions over the past few months were mainly related to liquidity concerns or our expectation of weakening credit metrics over the next year.

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Chart 4

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Software companies have not been spared by our recent negative rating actions. Of our negative rating actions on financial sponsor-owned issuers, 59% (17) were on software issuers. While their typically high recurring revenue bases are positive attributes, they are not immune to rating downside risks, given their already high leverage--average leverage in the low-8x area for 'B-' rated software issuers at the end of 2019--and liquidity constraints, in some cases. We took negative rating actions on those that have high exposure to weak end markets where we view higher risk of customer defaults or substantial price concessions, as well as those who had been underperforming before the pandemic. Examples of companies with vulnerable customer bases include QBS Parent Inc., which focuses on customers in the hard-hit oil and gas sector, and Aspen Jersey Topco LLC, which has a high concentration of customers in the retail sector. We have also taken negative rating actions on companies that had relied on continued business growth in 2020 to support their ratings. Recent negative rating actions on BY Crown Parent LLC and Starfish Holdco LLC are examples.

We have also taken negative rating actions on seven services companies. We expect services companies to see revenue declines as transaction-related activities decline. Solera Parent Holdings LLC, for example, has been hurt by shelter-in-place mandates and work-from-home practices that have resulted in less revenue from auto accident claim transactions. Other examples of affected service companies include First American Payment Systems L.P., which is a payment processor that generates the majority of its revenues from transaction fees.

While we rated fewer financial sponsor-owned hardware companies, which make up 10% of issuers, they have been disproportionally hurt since the pandemic broke out. Five of the eight hardware issuers have seen negative rating actions over the past three months. Hardware companies have little to no recurring revenues, subjecting them to higher business volatility than their tech counterparts. Another business risk factor for hardware companies is the supply chain disruptions as they deal with mobility restrictions enforced to slow the spread of COVID-19. Additionally, many hardware companies have had to incur extra costs to ensure precautions are in place to protect their employees. Our main concern with many hardware issuers is that leverage will remain higher for longer as order backlogs may be canceled instead of delayed once the lockdowns end, which could lead to liquidity concerns if the path to business recovery becomes longer than expected. It is evident to us, in order to preserve their profitability and liquidity, many hardware issuers are actively lowering their operating spend, i.e. travel, marketing, and pay cuts, until there is improved clarity on their business outlooks.

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Table 1

COVID-19-Related Rating Actions On Financial Sponsor-Owned Companies; Feb. 1 To June 9, 2020
Sorted by intensity of rating action
Downgrade and negative or developing outlook
Date Company To From Subsector Notes Research update
1 3/20/2020 SuperMoose Newco Inc. CCC+/Negative B-/Negative Software Downgrade with negative outlook SuperMoose NewCo Inc. Downgraded To 'CCC+' On Macroeconomic Weakness Stemming From Coronavirus; Outlook Negative
2 3/23/2020 Crackle Intermediate Corp. B-/Negative B/Negative Hardware Downgrade with negative outlook Crackle Intermediate Corp. Downgraded To 'B-' On Macroeconomic Weakness From Coronavirus; Outlook Negative
3 3/26/2020 Cvent Inc. CCC+/Watch Dev B-/Stable Software Downgrade with CreditWatch developing Cvent Inc. Downgraded To 'CCC+' On Macroeconomic Weakness From Coronavirus Fallout; Outlook Developing
4 3/27/2020 Optiv Inc. SD CCC+/Stable Services Upgraded to CCC/Negative on 4/2/2020 following distressed exchange Optiv Inc. Downgraded To 'SD' From 'CCC+' On Distressed Debt Exchange; Second-Lien Rating Lowered To 'D'
5 4/2/2020 Elo Touch Solutions Inc. B/Negative B+/Negative Hardware Downgrade with negative outlook Elo Touch Solutions Inc. Downgraded To 'B' On Pressures Facing Restaurant And Retail End Markets; Outlook Negative
6 4/7/2020 Transact Holdings Inc. CCC+/Negative B-/Stable Software Downgrade with negative outlook Transact Holdings Inc. Ratings Lowered To 'CCC+'; Outlook Negative On Elevated Liquidity Risk
7 4/10/2020 First American Payment Systems L.P. B-/Negative B/Stable Services Downgrade with negative outlook First American Payment Systems L.P. Downgraded To 'B-' On Macroeconomic Weakness Due To COVID-19; Outlook Negative
8 4/14/2020 Shift4 Payments LLC B-/Negative B/Stable Services Downgrade with negative outlook but upgraded to B/Stable on 6/17/2020 Shift4 Payments LLC Downgraded To 'B-' On Macroeconomic Weakness From COVID-19; Outlook Negative
Downgrade with stable outlook
Date Company To From Subsector Notes Research update
9 3/17/2020 Verifone Systems Inc. B-/Stable B/Stable Hardware Downgrade with stable outlook VeriFone Systems Inc. Ratings Lowered To 'B-' On Weaker-Than-Expected Performance; Outlook Stable
10 3/31/2020 Digital River Inc. CCC+/Stable B-/Negative Services Downgrade with stable outlook Digital River Inc. Downgraded To 'CCC+' On Weakened Credit Measures; Outlook Stable
11 4/6/2020 Blackhawk Network Holdings Inc. B-/Stable B/Stable Software Downgrade with stable outlook Blackhawk Network Holdings Inc. Downgraded To 'B-' On Rising Uncertainty About Consumer Spending Amid COVID-19
12 4/6/2020 BY Crown Parent LLC B-/Stable B/Stable Software Downgrade with stable outlook Blue Yonder Parent BY Crown Parent LLC Downgraded To 'B-' On Weakened Credit Metrics And COVID-19 Risk; Outlook Stable
13 4/28/2020 Rocket Software Inc. B-/Stable B/Negative Software Downgrade with stable outlook Rocket Software Inc. Downgraded To 'B-' On Macroeconomic Weakness Due To Coronavirus; Outlook Stable
14 5/27/2020 ASG Technologies Group Inc. B-/Stable B/Stable Software Downgrade with stable outlook ASG Technologies Group Inc. Downgraded To 'B-' On Weakened Credit Metrics And COVID-19 Risks; Outlook Stable
Outlook change to negative or CreditWatch negative
Date Company To From Subsector Notes Research update
15 3/18/2020 Banff Parent Inc. B-/Watch Neg B-/Stable Software Outlook changed to CreditWatch negative but stabilized on 5/8/2020 Banff Parent Inc. Ratings Placed On CreditWatch Negative On Macroeconomic Concerns Stemming From The New Coronavirus
16 3/23/2020 Electronics for Imaging Inc. B-/Negative B-/Stable Hardware Outlook changed to negative Electronics For Imaging Inc. Outlook Revised To Negative On Macroeconomic Impact From COVID-19
17 3/25/2020 QBS Parent Inc. B-/Negative B-/Stable Software Outlook changed to negative QBS Parent Inc. Outlook Revised To Negative On Low Oil Prices And Weaker Macroeconomic Outlook; 'B-' Rating Affirmed
18 3/30/2020 Project Silverback Holding Corp. B-/Negative B-/Stable Software Outlook changed to negative Project Silverback Holding Corp.(dba Sparta Systems Inc.) Outlook Revised To Negative From Stable; Ratings Affirmed
19 3/30/2020 Corsair Group (Cayman) L.P. B/Negative B/Stable Hardware Outlook changed to negative Corsair Group (Cayman) LP Outlook Revised To Negative On Likely Weaker Credit Metrics Amid COVID-19 Outbreak
20 4/6/2020 Solera Parent Holdings LLC B-/Negative B-/Stable Services Outlook changed to negative Solera Parent Holding LLC Outlook Revised To Negative On Weak Economic Forecast, Ratings Affirmed
21 4/9/2020 Aspen Jersey Topco LLC B-/Negative B-/Stable Software Outlook changed to negative Aspen Jersey Topco LLC Outlook Revised To Negative From Stable On Impact From Coronavirus; 'B-' Rating Affirmed
22 4/14/2020 Eclipse Midco Inc. B-/Negative B-/Stable Software Outlook changed to negative Eclipse Midco Inc. Outlook Revised To Negative From Stable On Rising Uncertainty From COVID-19; 'B-' Rating Affirmed
23 4/16/2020 Starfish Holdco LLC B-/Negative B-/Stable Software Outlook changed to negative Starfish Holdco LLC Outlook Revised To Negative On Macroeconomic Impact From COVID-19, 'B-' Rating Affirmed
24 4/20/2020 Procera I L.P. B-/Negative B-/Stable Software Outlook changed to negative Procera I L.P. Outlook Revised To Negative From Stable On Macroeconomic Weakness From Coronavirus
25 4/21/2020 Veritas Holdings Ltd. B-/Negative B-/Stable Software Outlook changed to negative Veritas Holdings Ltd. Outlook Revised To Negative From Stable On COVID-19 Related Macro Risk; Ratings Affirmed
26 5/1/2020 Datto Inc. B/Negative B/Stable Software Outlook changed to negative Datto Inc. Outlook Revised To Negative From Stable; 'B' Issuer Credit Rating Affirmed
27 6/8/2020 Omnitracs Holdings LLC B/Negative B/Stable Software Outlook changed to negative Omnitracs Holdings LLC Outlook Revised To Negative On Near-Term COVID-19 Risks; 'B' Ratings Affirmed
Outlook change to stable from positive
Date Company To From Subsector Notes Research update
28 4/21/2020 CCC Information Services Inc. B-/Stable B-/Positive Services Outlook changed to stable from positive CCC Information Services Inc. Outlook Revised To Stable From Positive On Weak Economic Forecast; 'B-' Rating Affirmed
29 4/24/2020 Ensono L.P. B-/Stable B-/Positive Services Outlook changed to stable from positive Ensono L.P. Outlook Revised To Stable From Positive; 'B-' Rating Affirmed

Sufficient Liquidity Is Key

Liquidity is key in times of crisis. Of the four financial sponsor-owned U.S. tech issuers we downgraded to the 'CCC' category over the past few months--Transact Holdings Inc., SuperMoose Newco Inc., Cvent Inc., and Digital River Inc.--liquidity was the key rating consideration. Companies that see significant working capital uses, have already accessed their revolvers, or face tight covenant restrictions are more likely to be considered for the 'CCC' rating category.

The assertion by many tech companies that their products are mission critical (and thereby their cash flows stable) will be tested in 2020 as many of their customers look to reduce their IT spend. Enterprise software firms with products that support customers' important business functions, e.g., OEConnection LLC and Hyland Software Inc., both of which provide important workflow-related functions for their customers, are less likely to see their revenues and FOCF deteriorate materially, and their ratings and outlooks are unchanged thus far. However, we have taken negative rating actions on other tech issuers because of how they are selling their products. The sizable license fees or implementation-related services have given customers pause in times of stress as they try to delay these sizable upfront costs for as long as possible. Such examples include Transact Holdings Inc., which has a material hardware and transaction revenue exposure that is subject to decline, and Eclipse Midco Inc., whose small and midsize business customers may feel tremendous business pressure during this recession.

We currently have 11 companies rated 'B-' with a negative rating outlook (table 2). Exposure to vulnerable end markets and the possibility of a liquidity crunch would be top reasons for rating downgrades to the 'CCC' category for some of these issuers.

Table 2

Key Exposures For U.S. Tech Financial Sponsor-Owned Companies With Negative Outlooks
Company Rating Outlook Subsector Key Exposure
Elo Touch Solutions Inc. B Negative Specialty hardware Restaurants, retail, and medical
Datto Inc. B Negative Application-specific software High exposure to SMBs
Corsair Group (Cayman) L.P. B Negative Specialty hardware Vulnerable to IT services spending downturn
Omnitracs Holdings LLC B Negative Specialty hardware Trucking and transportation
Aspen Jersey Topco LLC B- Negative Application-specific software Retail
Crackle Intermediate Corp. B- Negative Components Vulnerable to IT services spending downturn
Eclipse Midco Inc. B- Negative Enterprise software Distribution, construction, and manufacturing
Electronics for Imaging Inc. B- Negative Specialty hardware Industrial and manufacturing
First American Payment Systems L.P. B- Negative Payment processor Retail, restaurants, and travel
Procera I L.P. B- Negative IT infrastructure software Internet service providers and government entities
Project Silverback Holding Corp. B- Negative Application-specific software Biopharma and medical devices
QBS Parent Inc. B- Negative Application-specific software Oil and gas
Solera Parent Holdings LLC B- Negative Application-specific software Automotive and insurance
Starfish Holdco LLC B- Negative IT infrastructure software Vulnerable to IT services spending downturn
Veritas Bermuda Ltd. B- Negative IT management software Vulnerable to IT services spending downturn
Riverbed Parent Inc. CCC+ Negative Network equipment Vulnerable to IT services spending downturn
SuperMoose Newco Inc. CCC+ Negative Application-specific software Governments and municipalities
Transact Holdings Inc. CCC+ Negative Payment processor and software Higher education
Curvature Inc. CCC Negative Value-added reseller Vulnerable to IT services spending downturn
Optiv Inc. CCC Negative Value-added reseller Vulnerable to IT services spending downturn
SMB--Small and midsize business. IT--Information technology.

We do not see restructuring events such as distressed exchanges often in the tech sector, and chapter 11 bankruptcy filings are even less common. However, we've seen three chapter 11 defaults over the past year: Sungard Availability Services Capital Inc., Evergreen Skills Lux Srl, and 4L Technologies Inc. Sungard Availability and Evergreen Skills defaulted after continued poor performance, and 4L Technologies defaulted after the sudden loss of a large customer. We treat distressed exchanges as tantamount to conventional defaults. Over the past few months, we lowered our ratings on Curvature Inc. and Optiv Inc. to 'SD' (selective default) after both issuers participated in transactions that we viewed as a distressed exchange or harmful to lenders and without adequate compensation. In Curvature's case, lenders agreed to an interest payment deferral on second-lien notes. In Optiv's case, the company repurchased its debt, which was trading well below par, and it retired that debt. Both companies had ratings in the 'CCC' category prior to those exchanges.

Risks Are Still Weighted To The Downside

Even if a COVID-19 vaccine becomes available, IT spending and issuers' credit metrics may not return to their pre-COVID-19 levels immediately. While some software issuers could bounce back relatively quickly as their customers' business confidence recovers, others may take a longer time to recover. Examples of companies that may take longer to recover include Solera Parent Holding LLC and SuperMoose Newco Inc., both of which underperformed our expectations even before the pandemic.

In a low-growth environment, competition will be inevitably fierce. Financial sponsor-owned issuers that rely on significant growth or cost-cutting measures to realize their leverage-reduction plans will find themselves in an uphill battle. We expect revenues and profitability will be pressured for all tech enterprises, especially smaller ones that have less business and financial flexibility to weather the difficult environment. We trust that all financial sponsors are either actively reviewing the cost structures of their portfolio companies or have already formulated a plan to better match their portfolio companies' cost bases against likely flat to declining revenues over the near term. While we understand the urgency to cut costs (i.e., sales and marketing expenses) and preserve liquidity, side effects are possible and could have longer-term negative implications on the companies' growth prospects, customer satisfaction, and brand value. Some companies have benefited from entering the public equity markets recently, using the proceeds from their IPOs to reduce leverage. We raised our ratings on DiscoverOrg Holdings and Shift4 Payments LLC as a result of their debt reductions. However, equity markets can be choppy and may not always be open at favorable valuations.

We could downgrade more issuers to the 'CCC' category. We currently have 11 financial sponsor-owned issuers rated 'B-' with a negative rating outlook. Longer-term questions on the viability of certain tech issuers could arise if they cannot return to growth or generate positive FOCF, resulting in leverage remaining elevated for years.

Appendix

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Table 3

U.S. Tech Sector Rating Actions Related To COVID-19 From Feb. 1, 2020, To June 9, 2020
Financial sponsor-owned? Rating action date Company Subsector To From Reason for rating action
Rating actions within the 'CCC' category or lower
Yes 3/20/2020 SuperMoose Newco Inc. Software - Application Specific CCC+/Negative B-/Negative Liquidity concerns
Yes 3/26/2020 Cvent Inc. Software - Application Specific CCC+/CW Developing B-/Stable Liquidity concerns
Yes 3/27/2020 Optiv Inc. Services - IT Services SD CCC+/Stable Distressed exchange
Yes 3/31/2020 Digital River Inc. Services - Payment Processor CCC+/Stable B-/Negative Liquidity concerns
No 4/3/2020 Natel Engineering Co. Inc. Hardware - Electronic Manufacturing Services CCC+/Negative B/Negative Likelihood of distressed exchange
Yes 4/7/2020 Transact Holdings Inc. Software - Application Specific CCC+/Negative B-/Stable Liquidity concerns
No 4/16/2020 Priority Holdings LLC Services - Payment Processor CCC+/Negative B/Negative Liquidity concerns
Downgraded to 'B-'
Yes 3/17/2020 Verifone Systems Inc.* Hardware - Specialty B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
Yes 3/23/2020 Crackle Intermediate Corp. Hardware - Specialty B-/Negative B/Negative Shelter-in-place and lockdowns leading to worsening credit metrics
No 3/31/2020 Cohu Inc. Semiconductor - Semiconductor Equipment Manufacturing B-/Negative B/Stable Shelter-in-place and lockdowns leading to worsening credit metrics; supply chain disruptions
Yes 4/6/2020 Blackhawk Network Holdings Inc.* Software - Application Specific B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/6/2020 BY Crown Parent LLC* Software - Enterprise B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/10/2020 First American Payment Systems L.P. Services - Payment Processor B-/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/14/2020 Shift4 Payments LLC Services - Payment Processor B-/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
No 4/27/2020 NAB Holdings LLC Services - Payment Processor B-/Stable B/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
Yes 4/28/2020 Rocket Software Inc.* Software - IT Infrastructure B-/Stable B/Negative Macroeconomic factors leading to worsening credit metrics
Yes 5/27/2020 ASG Technologies Software - Application Specific B-/Stable B/Stable Macroeconomic factors leading to worsening credit metrics
Downgraded to 'B'
No 3/12/2020 Natel Engineering Company Inc. Hardware - Electronic Manufacturing Services B/Negative B+/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/2/2020 Elo Touch Solutions Inc. Hardware - Specialty B/Negative B+/Negative Shelter-in-place and lockdowns leading to worsening credit metrics
Downgraded to 'B+'
No 2/21/2020 Plantronics Inc. Hardware - Specialty B+/Stable BB-/Stable Macroeconomic factors leading to worsening credit metrics
No 3/30/2020 II-VI Inc. Semiconductor - Analog B+/Stable BB-/Stable Macroeconomic factors leading to worsening credit metrics
Downgraded to 'BB-'
No 4/7/2020 NCR Corp. Hardware - Specialty BB-/Stable BB/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
Outlook changes or rating placed on CreditWatch negative
No 2/20/2020 Corning Inc. Hardware - Specialty BBB+/Negative BBB+/Stable Macroeconomic factors leading to worsening credit metrics
Yes 3/18/2020 Banff Parent Inc.* Software - IT Infrastructure B-/CW Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
Yes 3/23/2020 Electronics for Imaging Inc. Hardware - Specialty B-/Negative B-/Positive Macroeconomic factors leading to worsening credit metrics
Yes 3/25/2020 QBS Parent Inc. Software - Application Specific B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
No 3/25/2020 Diebold Nixdorf Inc. Hardware - Specialty B-/Negative B-/Stable Shelter-in-place an lockdowns leading to worsening credit metrics
Yes 3/30/2020 Project Silverback Holding Corp. Software - Application Specific B-/Negative B-/Stable Liquidity concerns
Yes 3/30/2020 Corsair Group (Cayman) L.P. Hardware - Specialty B/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
No 3/30/2020 Dell Technologies Inc.* Hardware - Enterprise BB+/Negative BB+/Stable Macroeconomic factors leading to worsening credit metrics
No 3/30/2020 VMware Inc. Software - IT Infrastructure BBB-/Negative BBB-/Stable Rating closely linked to Dell Technologies Inc.
No 4/1/2020 Pitney Bowes Inc. Hardware - Specialty BB+/Negative BB+/Stable Macroeconomic factors leading to worsening credit metrics
No 4/3/2020 CommScope Holding Co Inc.* Hardware - Networking Equipment B/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/6/2020 Solera Parent Holdings LLC* Software - Application Specific B-/Negative B-/Stable Shelter-in-place an lockdowns leading to worsening credit metrics
Yes 4/9/2020 Aspen Jersey Topco LLC Software - Application Specific B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/14/2020 Eclipse Midco Inc. Software - Enterprise B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/16/2020 Starfish Holdco LLC Software - IT Infrastructure B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/20/2020 Procera I L.P. Software - IT Infrastructure B-/Negative B-/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/21/2020 CCC Information Services Inc. Software - Application Specific B-/Stable B-/Positive Shelter-in-place an lockdowns leading to worsening credit metrics
Yes 4/21/2020 Veritas Bermuda Ltd.* Software - IT Infrastructure B-/Negative B-/Stable Liquidity concerns
No 4/22/2020 Plantronics Inc. Hardware - Specialty B+/Negative B+/Stable Macroeconomic factors leading to worsening credit metrics
Yes 4/24/2020 Ensono L.P. Services - IT Services B-/Stable B-/Positive Liquidity concerns
No 4/28/2020 TE Connectivity Ltd. Hardware - Components A-/Negative A-/Stable Macroeconomic factors leading to worsening credit metrics
No 5/1/2020 EVO Payments International LLC Services - Payment Processor B/Negative B/Stable Shelter-in-place and lockdowns leading to worsening credit metrics
Yes 5/1/2020 Datto Inc. Software - Application Specific B/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
No 5/21/2020 GreenSky Holdings Services - Payment Processor B+/Negative B+/Stable Macroeconomic factors leading to worsening credit metrics
Yes 6/8/2020 Omnitracs Holdings LLC Hardware - Specialty B/Negative B/Stable Macroeconomic factors leading to worsening credit metrics
*--Part of the top 250 holdings for all collateralized loan obligation issuers. IT--Information technology. SD--Selective default. Source: S&P Global Ratings.

Table 4

U.S. Tech Issuers In Top 250 Holdings Of CLOs
Rank Company Rating Subsector
* 16 Dell Technologies Inc. BB+/Negative Enterprise hardware
28 SS&C Technologies Holdings Inc. BB/Stable Security software
* 42 CommScope Holding Co. Inc. B/Negative Network equipment
44 McAfee LLC B/Stable Security software
* 46 Banff Parent Inc. (dba BMC Software) B-/Stable IT infrastructure software
52 Rackspace Hosting Inc. B/Stable IT services
65 Avaya Holdings Corp. B/Stable Specialty hardware
71 Uber Technologies Inc. B-/Stable Internet-based services
* 73 Vertex HoldCo Inc. (dba VeriFone Systems) B-/Stable Specialty hardware
95 SolarWinds Holdings Inc. B+/Stable IT infrastructure software
* 113 Rocket Software Inc. B-/Stable IT infrastructure software
116 ION Corporate Solutions Finance Ltd. B/Stable Application-specific software
119 Balboa Intermediate (dba TIBCO Software) B/Stable IT infrastructure software
* 123 Solera Parent Holdings LLC B-/Negative Application-specific software
127 The Ultimate Software Group Inc. B-/Stable Application-specific software
141 Epicor Holdings Corp. B-/Stable Enterprise software
147 Endurance International Group Inc. B/Stable Internet-based services
155 Greeneden U.S. Holdings II LLC (dba Genesys) B-/Stable Application-specific software
162 Seahawk Holdings Ltd. B/Stable IT management software
165 Project Alpha Intermediate Holding Inc. (dba Qlik) B/Stable Application-specific software
174 Veritas Bermuda Ltd. B-/Negative IT management software
176 Riverbed Parent Inc. CCC+/Negative Network equipment
201 BY Crown Parent LLC (dba Blue Yonder) B-/Stable Enterprise software
202 Flexera Software LLC B-/Stable IT management software
205 Blackhawk Network Holdings Inc. B-/Stable Internet-based services
208 Western Digital Corp. BB+/Negative Enterprise hardware
217 Ithacalux Srl. B-/Stable IT infrastructure software
218 Project Viking Holdings Inc. (dba Vertafore) B-/Stable Application-specific software
237 DCert Buyer Inc. B-/Stable Security software
238 Sophia L.P. B-/Stable Application-specific software
*--Indicates that we have taken a COVID-19-related or macroeconomic-related rating action on the company in 2020. CLOs--Collateralized loan obligations. dba--Doing business as. IT--Information technology.

Table 5

Rated Financial Sponsor-Owned U.S. Tech Companies
No. Company Doing business as Rating Majority owner(s) Subsector
1 DiscoverOrg Holdings LLC Zoominfo B+/Stable TA Associates Application-specific software
2 SolarWinds Holdings Inc. B+/Stable SilverLake and Thoma Bravo IT infrastructure Software
3 Balboa Intermediate Holdings LLC TIBCO Software B/Stable Vista Equity Partners IT infrastructure Software
4 Dynatrace LLC B/Stable Thoma Bravo IT infrastructure Software
5 Endurance International Group Inc. B/Stable Goldman Sachs Capital Partners and Warburg Pincus Internet-based services
6 Fiserv Investment Solutions Inc. B/Stable Motive Partners Financial software
7 Intermedia Holdings Inc. B/Stable Madison Dearborn Partners IT services
8 ION Corporate Solutions Finance Ltd. B/Stable Due to financial policy, we treat as FS-6 Application-specific software
9 Kofax Parent Ltd. B/Stable Thoma Bravo Application-specific software
10 LI Group Holdings Inc. Liaison B/Stable Meritage Group Educational software
11 McAfee LLC B/Stable Thoma Bravo Security software
12 Project Alpha Intermediate Holding Inc. Qlik B/Stable Thoma Bravo Application-specific software
13 Rackspace Hosting Inc. B/Stable Apollo Global Management IT services
14 Seahawk Holdings Ltd. Quest Software B/Stable Francisco Partners IT management software
15 Shift4 Payments LLC B/Stable Searchlight Capital Payment processor
16 Vungle Inc. B/Stable The Blackstone Group Application-specific software
17 Web.com B/Stable Siris Capital Group Internet-based services
18 Corsair Group (Cayman), L.P. B/Negative EagleTree Capital Specialty hardware
19 Datto Inc. B/Negative Vista Equity Partners Application-specific software
20 Elo Touch Solutions Inc. B/Negative Crestview Advisors Specialty hardware
21 Omnitracs Holdings LLC B/Negative Vista Equity Partners Specialty hardware
22 ASG Technologies Group Inc. B-/Stable Evergreen Coast Capital Application-specific software
23 Applied Systems Inc. B-/Stable Hellman & Friedman Enterprise software
24 Astra Acquisition Corp Campus Mgmt Corp and Edcentric B-/Stable Veritas Capital Educational software
25 Banff Parent Inc. BMC Software B-/Stable KKR IT infrastructure software
26 Barracuda Networks Inc. B-/Stable Thoma Bravo Security software
27 Blackboard Inc. B-/Stable Providence Equity Partners Educational software
28 Blackhawk Network Holdings Inc. B-/Stable Silver Lake and P2 Capital Partners Financial software
29 Brave Parent Holdings, Inc. BeyondTrust B-/Stable Francisco Partners IT management software
30 Cambium Learning Group Inc. B-/Stable Veritas Capital Educational software
31 Casa Systems Inc. B-/Stable Summit Partners, L.P. Components
32 CCC Information Services Inc. B-/Stable Advent International Automotive software
33 DCert Buyer Inc. DigiCert B-/Stable TA Associates and Clearlake Capital Security software
34 Delta Holdco LLC Infoblox B-/Stable Vista Equity Partners Security software
35 Ensono L.P. B-/Stable Charlesbank Capital Partners IT services
36 Epicor Holdings Corp. B-/Stable KKR Enterprise software
37 Flexera Software LLC B-/Stable Ontario Teachers' Pension Plan IT management software
38 Gator Holdco (UK) Ltd. Aptean B-/Stable Vista Equity Partners and TA Associates Enterprise software
39 Gigamon Inc. B-/Stable Evergreen Coast Capital Network equipment
40 Globetrotter Intermediate LLC Quick Base B-/Stable Vista Equity Partners and WCAS Application-specific software
41 Greeneden U.S. Holdings II LLC Genesys B-/Stable Hellman & Friedman and Permira Application-specific software
42 HS Midco, Inc. Help Systems B-/Stable TA Associates and Charlesbank Capital IT management software
43 Hyland Software Inc. B-/Stable Thoma Bravo Enterprise software
44 Idera Inc. B-/Stable HGGC IT infrastructure Software
45 Imperva Inc. B-/Stable Thoma Bravo Security software
46 Ithacalux S.à r.l. Informatica B-/Stable Permira Funds IT infrastructure Software
47 Ivanti Software, Inc. B-/Stable Clearlake Capital Application-specific software
48 Mitchell Topco Holdings, Inc. B-/Stable Stone Point Capital Automotive software
49 NAVEX TopCo Inc. B-/Stable BC Partners Application-specific software
50 OEConnection LLC B-/Stable Genstar Capital Automotive software
51 Perforce Intermediate Holdings LLC B-/Stable Clearlake Capital and Francisco Partners Application-specific software
52 Pivotal Holdings Corp. Nuvei B-/Stable Novacap Payment processor
53 PPT Holdings I LLC Park Place Technologies B-/Stable Charlesbank Capital Partners IT Services
54 Project Viking Holdings Inc. Vertafore B-/Stable Bain Capital and Vista Equity Partners Application-specific software
55 Renaissance Holding Corp. Renaissance Learning B-/Stable Francisco Partners Educational software
56 Rocket Software Inc. B-/Stable Bain Capital IT infrastructure Software
57 RP Crown Parent LLC Blue Yonder B-/Stable New Mountain Capital and The Blackstone Group Enterprise software
58 S2P Acquisition Borrower, Inc. Jaggaer B-/Stable Cinven Enterprise software
59 Severin Holdings LLC Powerschool B-/Stable Vista Equity Partners Educational software
60 SonicWall Holdings Ltd. B-/Stable Francisco Partners Security software
61 Sophia L.P. Ellucian B-/Stable Leonard Green & Partners and TPG Capital Application-specific software
62 The Ultimate Software Group Inc. B-/Stable Hellman & Friedman and Blackstone Application-specific software
63 VeriFone Systems Inc. B-/Stable Francisco Partners Specialty hardware
64 VS Holding I Inc. Veeam Software B-/Stable Insight Partners Application-specific software
65 Weld North Education LLC Edgenuity and Imagine Learning B-/Stable Silver Lake Partners Educational software
66 Aspen Jersey Topco LLC Aptos B-/Negative Goldman Sachs Merchant Banking Application-specific software
67 Crackle Intermediate Corp. SnapAV B-/Negative Hellman and Friedman Components
68 Eclipse Midco Inc. ECi Software Solutions B-/Negative Apax Partners Enterprise software
69 Electronics for Imaging, Inc. B-/Negative Siris Capital Group Specialty hardware
70 First American Payment Systems L.P. B-/Negative Ontario Teachers Pension Plan Payment processor
71 Procera I L.P. Sandvine B-/Negative Francisco Partners IT infrastructure Software
72 Project Silverback Holding Corp. Sparta Systems B-/Negative New Mountain Capital Application-specific software
73 QBS Parent Inc. Quorum B-/Negative Thoma Bravo Application-specific software
74 Solera Parent Holdings LLC B-/Negative Vista Equity Partners Automotive software
75 Starfish Holdco LLC Syncsort B-/Negative Centerbridge Partners IT infrastructure software
76 Veritas Holdings Ltd. B-/Negative The Carlyle Group IT management software
77 Digital River Inc. CCC+/Stable Siris Capital Group e-Commerce services
78 Cvent, Inc. CCC+/CWDev Vista Equity Partners Application-specific software
79 Curvature, Inc. CCC/Negative Partners Group Value-added reseller
80 Optiv Inc. CCC/Negative KKR Value-added reseller
81 Riverbed Parent, Inc. CCC+/Negative Thoma Bravo Network equipment
82 SuperMoose Newco, Inc. CentralSquare Technologies CCC+/Negative Bain Capital and Vista Equity Partners Application-specific software
83 Transact Holdings Inc. CCC+/Negative Reverance Capital Partners Payment processor
84 Evergreen Skills Lux S.ar.l. Skillsoft NR post default Charterhouse prior to May 2020 default Educational software
IT--Information technology.

Table 6

Global IT Spending Forecast (%)
2019a 2020e (March 2020) 2020e (April 2020)
Macro
Global real GDP growth 2.9 1-1.5 (2.4)
U.S. real GDP growth 2.3 (0.5)-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)
Global IT spending 1.5 (3) (4.1)
Revenues
IT services 3-4 (2) (3)
Software 7-9 3-5 2
Semiconductors (13) (6) (7)
Network equipment 1-3 (4) (5)
Mobile telecommunications equipment 3-5 (1) (1)
External storage 1 (6) (9)
Shipments
PC (1) (9) (10)
Smartphone (2) (9) (9)
Server (6) 0 (5)
Printer N/A (8) (12)
a--Actual. e--Estimate. IT--Information technology. N/A--Not applicable. Source: S&P Global Ratings.

Related Research

This report does not constitute a rating action.

Primary Credit Analysts:Shailendra Pamnani, New York (1) 212-438-0396;
shailendra.pamnani@spglobal.com
David T Tsui, CFA, CPA, San Francisco (1) 212-438-2138;
david.tsui@spglobal.com
Research Assistant:Jeet Ganatra, New York

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