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Moody's Investors Service Inc.

Moody's Upgrades Rithum Holdings' Credit Rating

Strategic Insights

— 2 min read

Rithum Holdings, a leading provider of cloud-based software that integrates retailers with suppliers, has seen its corporate family rating (CFR) upgraded to B3 from Caa1 by Moody's Investors Service. This move reflects Rithum's efforts to balance its financial strategy, reduce debt, and increase revenue. The company's proposed refinancing transaction, which includes the issuance of $350 million of perpetual preferred stock, is expected to significantly reduce Rithum's debt burden from 7.8x to a pro forma level of 5.7x. Moody's has also assigned a B3 rating to Rithum's proposed senior secured first-lien bank credit facility, comprised of a $80 million revolver expiring 2030 and a $805 million term loan due 2032.

Key Takeaways:

  • Rithum's B3 CFR is based on its high pro forma debt/EBITDA, limited revenue scale, and concentrated vertical market focus.
  • The company's revenue is expected to increase at a mid single-digit annual rate over the next 12-18 months, resulting in a reduction in debt/EBITDA to 5.0x by 2026.
  • A stable rating outlook reflects Moody's expectation of sustained revenue growth, moderate profit margins, and debt/EBITDA below 6.0x.
  • The company's liquidity profile is good, supported by a cash balance of $55 million and annual free cash flow-to-debt approximating 3%-4% over the next 12-15 months.
  • Rithum's proposed term loan is not subject to financial covenants, but the revolving credit facility will be subject to a springing maximum first-lien net leverage ratio of 8.25x.
  • The company's projected revenue for 2025 is approximately $330 million.
  • Between 12-18 months, the company's software adjusted EBITDA margins are projected to approach 45% not including capitalized software costs as an expense.

Statistics:

  • Rithum's debt will be reduced from 7.8x to a pro forma level of 5.7x.
  • Moody's expects Rithum's revenue to increase at a mid single-digit annual rate over the next 12-18 months.
  • The company's proposed term loan is not subject to financial covenants.
  • The revolving credit facility will have a springing maximum first-lien net leverage ratio of 8.25x.
  • Rithum's projected annual free cash flow-to-debt is expected to range between 3%-4% over the next 12-15 months.
  • The company's cash balance will be approximately $55 million following completion of the refinancing transaction.
  • Rithum's projected revenue for 2025 is approximately $330 million.

Sources:

  • Moody's Investors Service, "Moody's Upgrades Rithum Holdings, Inc.'s Ratings, Assigns B3 Rating to Proposed Senior Secured First-Lien Bank Credit Facility" (May 12, 2023)
  • Moody's Investors Service, "Ratings Rationale: Rithum Holdings, Inc." (May 12, 2023)

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