June 25, 2012 / 7:26 PM / 5 years ago

TEXT-S&P revises Bankrate rating to '3'

9 Min Read

     -- We have updated our recovery analysis for U.S. ad-supported personal 
financial information services and aggregate rate financial data provider 
     -- We are revising our recovery rating on the senior secured debt to '3' 
from '4' based on an increased estimated enterprise value at default, 
reflecting better operating performance and recent acquisitions.
     -- At the same time, we are affirming our 'BB-' corporate credit rating 
and the issue-level ratings on the company. 
     -- The stable rating outlook reflects our expectation that Bankrate will 
experience healthy growth over the medium term and that acquisitions could 
increase debt leverage somewhat

Rating Action
On June 25, 2012, Standard & Poor's Ratings Services revised its recovery 
rating on North Palm Beach, Fla.-based Bankrate Inc.'s secured debt
upward to '3' from '4'. The '3' recovery rating indicates our expectation of
meaningful (50%-70%) recovery prospects in the event of a default.

We also affirmed our 'BB-' corporate credit rating on Bankrate. The outlook is 

In addition, we affirmed our 'BB+' issue-level rating on the company's $30 
million super-priority revolver credit facility and our 'BB-' issue-level 
rating on its senior secured notes and senior secured revolving credit 
facility. The recovery rating on the tranche A debt is '1', indicating 
expectations for very high (90%-100%) of recovery in the event of payment 

The rating on Bankrate reflects our expectation that leverage will remain 
moderate as the company continues to benefit from the growth in online 
advertising. We consider the company's business risk profile "fair" (based on 
our criteria), reflecting its exposure to the financial services industry, the 
highly competitive online advertising market, and its acquisition-oriented 
growth strategy, while also weighing its strong EBITDA margin. We view 
Bankrate's financial risk profile as "significant," with the potential for 
debt-financed acquisitions and shareholder-favoring transactions tempering the 
benefit of moderate debt leverage.

Bankrate offers ad-supported personal financial information services and 
aggregates rate data for more than 300 financial products from roughly 4,800 
institutions. It generates revenue primary through lead generation advertising 
and hyperlink (cost per click) advertising, both of which pay based on 
performance, and display advertising. The customer base is diverse, although 
advertisers are mainly financial institutions, subject to prevailing economic 
conditions. Like most Internet companies, Bankrate depends on search engines 
for a substantial portion of its Internet traffic. Significant changes to 
search engine algorithms could hurt the volume of traffic reaching Bankrate 
Web sites. Still, it has benefited from changes that reward sites with higher 
quality content. Bankrate will have to maintain the relevance of its content 
to Internet users to ensure steady streams of Internet traffic. 

Bankrate has been a very active acquirer. Recent acquisitions expanded its 
presence in the insurance and credit card verticals. We believe 
insurance-related business is generally less cyclical than some of its other 
financial products, and provides a large growth opportunity for the company. 
Bankrate can use its company-owned Web sites and editorial and media 
relationships to drive traffic to acquired sites. The credit card segment is 
the only one in which Bankrate receives compensation based on its clients' 
conversion of leads to an approved application; it is therefore vulnerable to 
lower credit card approval levels.

Our base-case 2012 scenario assumes low- to mid-teen percentage organic 
revenue growth, with total revenue growth of over 20% on the benefit from the 
InsWeb acquisition. We believe the EBITDA margin will be around 30% in 2012, 
leading to EBITDA growth of 20% or more, as the integration of the lower 
margin InsWeb business and increased marketing spending offset higher gross 
margins reflecting increased organic revenue. In 2013, we expect revenue 
growth of 10% or more and mid- to high-teen percentage EBITDA growth.

For the first quarter of 2012, Bankrate's revenue and EBITDA increased 26% and 
23%, respectively, year over year, with growth from all products. For the 12 
months ended Sept. 30, 2011, the adjusted EBITDA margin was 29.8%, slightly 
lower than levels from one year earlier on increased marketing expenses. 

Under our base-case scenario for 2012, lease-adjusted leverage will fall to 
1.3x and lease-adjusted coverage of interest will increase to around 7.0x, 
mainly through EBITDA growth. In 2013, we expect adjusted leverage to decrease 
to 1.1x and adjust interest coverage to rise to 8.0x or more. Lease-adjusted 
debt leverage was 1.4x for the 12 months ended March 31, 2012, from EBITDA 
growth and the repayment of $105 million of debt with proceeds from Bankrate's 
IPO in the second quarter of last year. Leverage is below the indicative 
significant financial risk threshold of 3x to 4x adjusted debt to EBITDA, but 
we expect leverage could drift higher, given Bankrate's appetite for 
acquisitions and the potential for returns to shareholders. Lease-adjusted 
coverage of interest was 4.8x for the year ended March 31. Conversion of 
adjusted EBITDA to discretionary cash flow was about 40% during the 12 months 
ended March 31, 2012, on expenses related to the IPO. In 2012 and 2013, we 
expect the conversion rate to improve to around 60% on higher EBITDA and the 
absence of one-time charges.

In our view, Bankrate has "strong" liquidity to cover its needs over the next 
12 to 18 months, including interest payments and ongoing operating needs. Our 
view of the company's liquidity profile incorporates the following 
expectations and assumptions:  
     -- We expect sources of liquidity to exceed uses by more than 1.5x over 
the next 12 months. 
     -- We also expect cash sources to continue exceeding cash uses, even if 
EBITDA declines 30%. 
     -- We expect Bankrate could maintain financial covenant compliance, even 
with a 30% EBITDA decline. 
     -- We believe it would be able to absorb high-impact, low-probability 
     -- We also believe Bankrate has a satisfactory standing in the credit 

Sources of liquidity include cash balances of $64.5 million, full availability 
under its $100 million revolving credit facility, and expected discretionary 
cash flow of $90 million or more in 2012 and over $100 million in 2013. 
Capital spending requirements are modest and Bankrate has no debt maturities 
until 2015.

Bankrate is currently subject to a maximum leverage covenant of 4.25x on its 
revolving credit facilities. As of March 31, 2012, it had covenant headroom of 
almost 70% with this covenant. The covenant does not step down and we expect 
headroom under the covenant to increase in the future.

Recovery analysis
See Standard & Poor's recovery report on Bankrate, to be published following 
the release of this report on RatingsDirect.

Our stable outlook reflects our expectation that Bankrate will experience 
healthy growth over the medium term and that acquisitions could increase debt 
leverage somewhat. We could lower the rating if operating performance 
deteriorates, likely in conjunction with increasing competition. We could 
consider an upgrade over the longer term if the company can expand its revenue 
base and maintain its good competitive position, high profitability, and 
moderate debt leverage.

Related Criteria And Research
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List

Ratings Affirmed

Bankrate Inc.
 Corporate Credit Rating                BB-/Stable/--      
 Senior Secured tranche A               BB+                
   Recovery Rating                      1                  

Ratings Affirmed; Recovery Rating Revised

Bankrate Inc.
                                        To                 From
 Senior Secured tranche B & 11.75% nts  BB-                BB-
   Recovery Rating                      3                  4

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