TEXT - S&P cuts CCC Information Services Inc to 'B'

Thu Dec 6, 2012 2:26pm EST

Overview
     -- Leonard Green & Partners plans to acquire a controlling interest in 
U.S. provider of solutions for the auto claims industry CCC Information 
Services Inc. (CCC) from Investcorp. The transaction will be funded through a 
combination of new equity, senior secured debt, and mezzanine debt.
     -- The transaction will result in an increase in expected pro forma 
leverage to approximately 7.5x from 4.6x in fiscal 2012.
     -- We are lowering our corporate credit rating on the company to 'B' from 
'B+' with a negative outlook.
     -- In addition, we are assigning a 'B+' issue-level rating with a 
recovery rating of '2' to the company's proposed $50 million senior secured 
revolving credit facility and $470 million first-lien term loan.
     -- The negative outlook reflects a significant increase in pro forma 
leverage and weak debt protection metrics.

Rating Action
On Dec. 6, 2012, Standard & Poor's Ratings Services lowered its corporate 
credit rating on Chicago, Ill.-based CCC Information Services Inc. to 'B' from 
'B+'. The outlook is negative.

In addition, we are assigning our 'B+' issue-level rating with a recovery 
rating of '2' to the company's proposed $50 million senior secured revolving 
credit facility (unfunded at closing) and $470 million first-lien term loan. 
The '2' recovery rating indicates our expectation for substantial (70% to 90%) 
recovery for lenders in the event of payment default.  

The company is using the loan proceeds together with $260 million of mezzanine 
notes (which we do not rate) and sponsor's equity contribution to fund the 
proposed transaction, including refinancing existing debt.

Rationale
The rating on CCC reflects the company's "weak" business risk profile, 
characterized by its narrow product focus within a mature niche market, and 
what we view as a "highly leveraged" financial risk profile. The company's 
significant base of recurring revenues, high barriers to entry, and solid 
operating margins partly offset these factors.   

Standard & Poor's base-case rating assumptions over the outlook horizon 
include: revenue growth in the mid-single digit range, mainly reflecting 
add-on product sales; a modest improvement in EBITDA margins due to 
scale-related operating efficiency; and leverage improvement driven by both 
EBITDA growth and debt repayments.

CCC is the leading provider of integrated software, analytics, and workflow 
management systems for the auto claims industry, serving approximately 350 
insurance carriers and 21,000 repair facilities in the U.S. 

We are maintaining our "weak" business risk profile evaluation on CCC. The 
niche market for software and services designed to automate the automobile 
insurance claims process is a concentrated, approximately $1 billion market, 
dominated by CCC, Mitchell International, and Solera. While CCC has 
relationships with many of the top insurance carriers, some dating back more 
than 20 years, continued execution on service and investment in product 
development will be important in this highly competitive marketplace. Access 
to CCC's proprietary database, which includes about $500 billion of claims 
data, has helped to create CCC's long-term customer relationships. 

We expect the company's revenues to grow in mid-single digits in 2013 and 
2014, mainly reflecting up-selling to existing customers of products that will 
include predictive analytics and Open Shop tools. In addition, we believe that 
revenue growth will be supported by CCC's recently launched, cloud-based total 
repair platform, which will allow the company to roll out updates more 
frequently and to sell add-on services and packages.

Furthermore, we expect CCC's EBITDA margin to improve toward the mid 30% area 
over the next year, reflecting modest operating scale improvements, as well as 
lower operating expenses resulting from the completion of the CCC One 
cloud-based platform.

We revised our view of CCC's financial risk profile to "highly leveraged" from 
"aggressive," incorporating the increase in leverage following the 
transaction. In our assessment, the company's management and governance is 
"fair".

We expect CCC's pro forma lease adjusted debt to adjusted EBITDA to increase 
to approximately 7.5x from 4.6x in fiscal year ended 2012. Our adjusted EBITDA 
incorporates a full year of earnings from a recently signed contract with 
Allstate, as well as other one-time adjustments. 

We believe that the company's highly recurring revenue base and solid EBITDA 
margins will result in steady free cash flow generation, and that 
discretionary cash flow will be used to repay debt. As a result, we expect 
leverage to improve to about 7x over the next year.

Liquidity
CCC has "adequate" liquidity. Cash sources include full availability under a 
$50 million revolving credit facility, as well as modest free cash flow 
generation. We expect uses to include minimal working capital requirements, 
and modest annual capital expenditures of about 5% of revenues.

Other expectations in terms of the liquidity analysis include:
     -- We project sources of cash will exceed uses by more than 1.2x over the 
next year, reflecting positive cash flow generation. 
     -- Net sources are likely to be positive, even if EBITDA declines by 20%.
     -- The current rating does not incorporate any material acquisitions or 
shareholder payments that could stress liquidity.
     -- CCC's credit agreement is expected to contain one financial covenant, 
a total net leverage ratio, which will be in effect only when the revolver's 
usage exceeds $10 million.

Recovery analysis
We are assigning our 'B+' issue-level rating with a recovery rating of '2' to 
the company's proposed $50 million senior secured revolving credit facility 
(unfunded at closing) and $470 million first-lien term loan. The '2' recovery 
rating indicates our expectation for substantial (70% to 90%) recovery for 
lenders in the event of payment default. For the complete recovery analysis, 
see the recovery report, to be published shortly on RatingsDirect.

Outlook
The negative outlook is based upon pro forma leverage increasing to 7.5x, 
which we view as high for the rating. Although we expect leverage to decline 
to about 7x by year-end 2013, acquisitions, dividends, or a loss of a major 
customer may forestall the expected reduction in leverage. We could revise the 
outlook to stable if the company meets our 2013 year-end leverage target 
through expected EBITDA growth and debt repayment. We would lower the 
corporate credit rating to 'B-' if heightened competition, debt-funded 
acquisitions, or debt-funded dividends preclude an improvement in leverage by 
2013 year-end. 

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008


Ratings List
Downgraded; CreditWatch/Outlook Action
                                        To                 From
CCC Information Services Inc.
 Corporate Credit Rating                B/Negative/--      B+/Stable/--

New Rating

CCC Information Services Inc.
 Senior Secured
  US$50 mil var rate revolver bank ln   B+                 
   Recovery Rating                      2                  
  US$470 mil var rate term B bank ln    B+                 
   Recovery Rating                      2