S&P rates Northpole loans

S&P said it assigned a preliminary B long-term issuer credit rating to NSO Group, along with preliminary B issue ratings to the proposed $500 million equivalent term loans to be issued by Northpole NewCo Sarl and Westbridge Technologies Inc.

The recovery rating on the proposed facilities is 3, indicating 60% expected default recovery.

Northpole plans to use $500 million of senior secured term loans to fund the buyout of NSO Group, S&P explained.

On a pro forma basis, the agency said it estimates this transaction would increase NSO's adjusted debt-to-EBITDA ratio to about 4.2x for 2018.

The agency said it forecasts a potential significant decline in leverage to about 3.5x in 2019, thanks to continued strong demand for the company's products, increased recurring revenues and 60% to 70% free cash flow conversion from EBITDA.

The stable outlook reflects an expectation that NSO will maintain its competitive advantage by keeping research and development at about 20% of sales, which should support continued favorable demand for its products, S&P said.

The agency also benefits from increased outsourcing by government agencies and strong conversion of new licenses into recurring maintenance revenues.

The ratings are constrained by the company's relatively small scale and niche focus, high customer concentration and high reliance on perpetual license sales, S&P said.

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