S&P Assigns 'BB' Rating to PTC (PTC); Outlook Stable

S&P Global Ratings said that it assigned its 'BB' corporate credit rating to PTC Inc. (Nasdaq: PTC). The rating outlook is stable.

We also assigned our 'BB-' issue-level rating and '5' recovery rating to the company's recently announced $500 million senior unsecured notes. The '5' recovery rating indicates our expectation for modest recovery (10%-30%; lower half of the range) of principal in the event of a payment default.

Our corporate credit rating on PTC reflects the company's ongoing transition to a subscription-based pricing model and the recent weakness in its core computer aided design (CAD) and product lifecycle management (PLM) markets due to softening in global manufacturing and sales execution issues. The company's diverse customer base, growing suite of products, and solid track record of generating free operating cash flow offset these risks.

"The stable outlook reflects our expectation that, despite revenue and EBITDA margin declines primarily from the shift to subscription based pricing, PTC's diverse product offering and large customer base will enable the company to continue to generate solid free operating cash flow over the coming year," said S&P Global Ratings credit analyst Dee Banson.

We could lower our corporate credit rating on PTC if the shift to subscription-based pricing causes a steeper-than-expected drop in EBITDA, or if the company pursues debt-funded acquisitions or shareholder returns such that leverage is sustained above 3x.

Although not likely over the coming year, we could raise the rating on PTC if the company shows consistent revenue growth and improving EBITDA margins while maintaining adjusted leverage below 2x on a sustained basis.

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