-- We have received final documentation on U.S. supply chain management
(SCM) software provider RP Crown Parent LLC's $1.55 billion first-lien credit
facility and its $650 million second-lien credit facility.
-- We are assigning a 'B' corporate credit rating to RP Crown Parent, the
parent company of RedPrairie Corp. and JDA Software Inc.
-- At the same time, we are assigning a 'B+' issue-level rating to the
company's first-lien term loan and revolving credit facility with a recovery
rating of '2'. We are also assigning a 'CCC+' issue-level rating to the
company's second-lien term loan with a recovery rating of '6'.
-- The stable outlook reflects our expectation that the company's
recurring revenue base will allow it to deliver modest revenue growth despite
a challenging selling environment, and that it will realize cost synergies in
2013, resulting in modest deleveraging to the mid- to high-7x area.
On Jan. 4, 2013, Standard & Poor's Ratings Services assigned a 'B' corporate
credit rating to RP Crown Parent LLC. The outlook is stable.
In addition, we assigned a 'B+' issue-level rating to the company's $1.45
billion senior secured first-lien term loan due 2018, and $100 million
revolving credit facility due 2017. The '2' recovery rating indicates our
expectation of substantial recovery (70% to 90%) in the event of payment
default. We also assigned a 'CCC+' issue-level rating to the company's senior
secured second-lien term loan due 2019. The '6' recovery rating indicates our
expectation of negligible recovery (0% to 10%) in the event of payment default.
The company used the proceeds, along with cash and new equity, to acquire all
outstanding shares of JDA common stock, repay debt at RedPrairie and JDA, and
pay transaction costs.
Our ratings on RP Crown Parent reflect the combined company's "fair" business
risk profile resulting from its narrow product focus, its competitive market
segment, and near-term integration risk, as well as its "highly leveraged"
financial risk profile with pro forma leverage above 8x and modest free cash
flow expected in 2013. These factors are offset in part by meaningful
recurring revenues and the company's diverse and entrenched customer base,
which we expect will allow it to deliver modest revenue growth. We expect
meaningful cost synergies in 2013 to result in leverage in the mid- to-
The merger combines JDA's strength in supply chain planning (demand
forecasting and pricing) and RedPrairie's supply chain execution capabilities
(warehouse, workforce, transportation, and multichannel management) to create
the number three competitor in the market for SCM software and position it as
a best-of-breed, end-to-end solution with strength in retail and
manufacturing. The company will be led by the JDA CEO, who has a track record
of successfully integrating large-scale acquisitions such as Manugistics in
2006 and i2 in 2010. Competition in the SCM software market is intense with
SAP and Oracle holding meaningful market share, while the rest of the market
is highly fragmented.
We view the company's business risk profile as fair, reflecting its narrow
focus on the SCM software market; competitive industry dynamics with larger,
more diverse competitors and several niche players; and exposure to the
cyclical retail and manufacturing industries. In the near term, the company
faces integration risk related to an aggressive cost-reduction plan
representing nearly 10% of pro forma revenues and combining product platforms.
Nevertheless, the company has meaningful recurring maintenance and
subscription revenues, modest customer concentration with its top five
customers representing less than 15% of revenues, and products that are
critical to its customers' operations, resulting in high customer retention.
The company has also demonstrated the ability to monetize its customer base
with the majority of its license revenue coming from existing customers. In
our assessment, the company's management and governance is "fair".
Pro forma revenues for the 12 months ended Sept. 30, 2012, were more than $1
billion with EBITDA margins in the mid-20% area. We expect that in 2013, a
challenging IT spending environment will result in low-single-digit revenue
growth, but that the company will be able to deliver modest margin expansion
through realized cost synergies. We anticipate that free cash flow will be
modestly positive in 2013 as the company incurs restructuring costs.
We view the company's financial risk profile as highly leveraged with adjusted
leverage in the low-8x area as of Sept. 30, 2012, excluding expected cost
synergies. We expect leverage to peak in the mid-8x area at the end of 2012 as
a strong fiscal 2011 fourth quarter rolls off. Furthermore, we anticipate that
in 2013, leverage will fall to the mid- to high-7x area as the company
realizes cost synergies with the potential to reach the low-7x area if the
company captures all anticipated cost savings. Although the CEO has a track
record of transformative acquisitions, there is no capacity within the ratings
for additional debt-financed acquisitions.
The company's liquidity is "adequate" in our view, with sources of cash likely
to exceed uses during the next 12 to 24 months. Cash sources include a cash
balance of about $100 million, $100 million of availability under its
revolving credit facility, and expected annual funds from operation (FFO) in
the $110 million area (before restructuring costs). We expect uses to include
modest working capital investments and capital expenditures near $50 million,
$15 million of mandatory debt amortization, and $50 million of restructuring
costs over the next 12 months.
Our assessment of the company's liquidity profile incorporates the following
expectations, assumptions, and factors:
-- Sources of liquidity are likely to exceed uses by at least 20% over
the next 12 to 24 months.
-- Net sources would be positive, even with a 15% decline in EBITDA.
-- The company is likely to maintain at least 15% cushion under its
springing leverage covenant, which is in force only when the revolver is 25%
For the complete the recovery analysis, see the recovery report on RP Crown
Parent, published on Nov. 30, 2012, on RatingsDirect.
The stable outlook reflects our expectation that the company's recurring
revenue base will allow it to deliver modest revenue growth, and that realized
cost synergies will result in leverage in the mid- to high-7x area. The
possibility of an upgrade is limited by the company's highly leveraged
financial profile and modest expected free cash flow in 2013.
We could lower the rating if the company does not deleverage from pro forma
levels in 2013 due to integration challenges, macroeconomic headwinds, or
increased competition. We could also lower the rating if these factors lead to
negative free cash flow or inadequate liquidity.
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
-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
New Rating; Outlook Action
RP Crown Parent LLC
Corporate Credit Rating B/Stable/--
US$1.45 bil 1st term bank ln due B+
Recovery Rating 2
US$650 mil 2nd lien bank ln due CCC+
Recovery Rating 6
US$100 mil revolver bank ln due 2017 B+
Recovery Rating 2
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left