S&P Assigns 'BB+' Rating to LinkedIn (LNKD); Outlook Stable

Standard & Poor's Ratings Services said today that it assigned its unsolicited 'BB+' corporate credit rating to Mountain View, Calif.-based professional social networking company LinkedIn Corp.(NYSE: LNKD). The outlook is stable.

At the same time, we assigned our unsolicited 'BB+' issue-level rating and unsolicited '3' recovery rating to the company's $1.3 billion convertible notes due 2019. The '3' recovery rating indicates our expectation for meaningful recovery (50%-70%) of principal for debtholders in the event of a payment default.

LinkedIn will use the proceeds from the debt issuance for general corporate purposes, including operating needs. Pro forma for the debt offering, we estimate that the company had about $3.6 billion in cash and cash equivalents and short-term investments and $1.3 billion of debt as of Sept. 30, 2014.

The unsolicited 'BB+' corporate credit rating incorporates our assumption of double-digit percentage growth in LinkedIn Solution customers, robust growth in unique visiting members and page views, positive discretionary cash flow (about 40% of EBITDA), and minimal debt leverage.

The rating outlook is stable. "We expect LinkedIn to experience strong growth over the next two years as the company rolls out new services and enters new markets," said Standard & Poor's credit analyst Any Liu. "We also expect that the company will convert about 40% of EBITDA into discretionary cash flow, which is modest, due to high level of capital expenditures."

We could raise the rating if LinkedIn can continue to profitably enter new markets and increase its discretionary cash flow generation. More specifically, we could raise the rating if we believe that the company can expand its discretionary cash flow to more than accommodate growing capital expenditure needs and acquisition spending, thereby resulting in the removal of the negative comparable ratings assessment.

We could lower the rating if LinkedIn experiences a meaningful deceleration in revenue growth over the next two years to near flattish (relative to our expectation of strong growth) and EBITDA margin contraction. This would suggest increased competitive pressure and that discretionary cash flow could experience a marked decline in the absence of a significant decrease in cost or capital spending.

You May Also Be Interested In

• Camden Property Trust (CPT) Announces Executive Changes
• Interactive Brokers Group (IBKR) PT Raised to $136 at Barclays
• Northcoast Research Downgrades Boeing (BA) to Sell, 'Waiting for the final chapter'