Moody's rates Dye & Durham B2, loans B1

Moody’s Ratings said it assigned B1 ratings to Dye & Durham Corp.’s planned backed senior secured first-lien revolving credit facility and backed senior secured first-lien term loan. The agency also gave D&D a B2 corporate family rating, a B2-PD probability of default rating and an SGL-2 speculative grade liquidity rating to the company. The outlook is stable.

The agency noted D&D’s high debt/EBITDA at 6.3x for the last 12 months ended Dec. 31, though it anticipates the company will lower it to below 5.5x by the end of fiscal 2025 ending June 30, 2025. D&D also generates 81% of its revenue from the legal market and has low recurring revenue because more than 50% of its revenue is derived from transaction-based services, which are volatile.

On the plus side, D&D has global market positions as a provider of cloud-based software solutions that help law firms improve productivity, win new business and handle compliance requirements; strong margins, supported by its proprietary technology services and a largely variable cost structure; low customer concentration, which increases stability in results, Moody’s said.

D&D plans to raise new debt, consisting of a secured term loan and other secured debt. The proceeds will be used to repay the company's term loans, and convertible debentures due 2026, with the remainder going to cash. The company will also put in place a new secured revolving credit facility, which will be undrawn at close.

When the transaction closes, D&D will have a C$105 million secured revolving credit facility and C$495 million first-lien secured term loan B, both rated B1, and C$680 million other secured debt and unrated C$160 million in convertible senior unsecured debentures due 2028.

The revolver and term loan are rated one notch above the CFR, because of their senior ranking in the capital structure and loss absorption provided by the convertible debentures, Moody’s explained.

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