Moody's downgrades Finastra

Moody's Investors Service said it downgraded Finastra Ltd.’s corporate family rating to Caa1 from B3 and probability of default rating to Caa1-PD from B3-PD. Concurrently, the agency trimmed to B3 from B2 and to Caa3 from Caa2 the first-lien and second-lien backed senior secured bank credit facilities, respectively, borrowed at subsidiaries DH Corp., Finastra Europe SA and Finastra USA, Inc. The outlook on all ratings has been changed to negative from stable.

“The downgrade of Finastra's CFR to Caa1 from B3 reflects heightened refinancing risks in light of the upcoming maturity of the group's $375 million backed senior secured revolving credit facility (RCF) and $4.1 billion equivalent outstanding backed senior secured first lien term loans due in March 2024 and June 2024, respectively,” the agency said in a press release.

Finastra may be working on a refinancing plan with the aim to complete it in the coming months, Moody's said; however, current unpredictable capital market conditions, rising interest rates and a weakening in the broader macroeconomic environment may make the refinancing more difficult and expensive, given the company's very high leverage.

The agency said it projects Finastra’s Moody's-adjusted EBITDA to increase towards $650 million and $745 million in fiscal 2023 and fiscal 2024, respectively, propelled by revenue growth and cost savings initiatives, but is predicting negative free cash flow over the next 12 to 18 months due to increased interest expenses.

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