Moody's Raises Verint Systems (VRNT) to 'Ba3'; Reflects Reduced Leverage on Equity Offering, Debt Paydown

Moody's upgraded Verint Systems' (Nasdaq: VRNT) corporate family rating to Ba3 from B1, its probability of default rating to Ba3-PD from B1-PD and its senior secured loan ratings to Ba2 from B1. The upgrades were driven by Verint's recent equity and convertible debt issuance and subsequent secured debt paydown. The speculative grade liquidity rating was also revised to SGL-1 from SGL-2. This concludes the review that was initiated on June 11, 2014 when Verint announced its intention to issue new equity. The ratings outlook is stable.

RATINGS RATIONALE

The corporate family rating upgrade to Ba3 reflects the reduced leverage as a result of the equity offering and subsequent debt paydown. As a result of the debt paydown, debt to EBITDA reduced to approximately 4.2x from 5.3x (based on April 2014 results and pro forma for a full year of the KANA acquisition). The Ba3 corporate family rating also reflects the expectation of continued growth in revenues, EBITDA and free cash flow. Verint is expected to generate $1.1 billion in revenues in Fiscal 2015 (up from approximately $700 million in fiscal 2010). While the company can de-lever further over the next year if it uses its strong free cash flow to further pay down debt, Verint is acquisitive and cash flow (and potentially additional debt) will likely be used for further acquisitions.

The Ba3 rating also considers Verint's strong market positions in the workforce optimization software industry and video and communications security systems industries. The strong positions are bolstered by Verint's expertise in software that analyzes unstructured data (i.e. conversations, chat, email, video etc.) and their development of analytic software tools for specific industries.

The ratings could face upward pressure if the company continues to grow organically and sustains leverage under 3.5x. The ratings could be downgraded if leverage exceeds 4.5x or free cash flow to debt is less than 15% on other than a temporary basis.

Liquidity as reflected in the SGL-1 rating is very good based on cash balances of $187 million as of April 2014, an expectation of free cash flow of over $175 million and an undrawn $300 million revolver.

The upgrade in the first lien debt ratings to Ba2 from B1 reflect the pay-down of approximately $630 million in first lien debt from proceeds of the recent equity and convertible debt (unrated) offerings and its improved relative position in the capital structure.

Upgrades:

..Issuer: Verint Systems Inc.

.... Corporate Family Rating, Upgraded to Ba3 from B1

.... Probability of Default Rating, Upgraded to Ba3-PD from B1-PD

.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

....Senior Secured Bank Facilities -- various maturities, Upgraded to Ba2 from B1, LGD2, 29 % from a range of LGD3, 49 %

....Outlook, Changed To Stable From Rating Under Review

The principal methodology used in this rating was the Global Software Industry published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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