S&P Cuts Rating on Rovi (ROVI) to 'B+'; Outlook Stable
Tweet
Share
E-mailGet Alerts ROVI Hot Sheet
Join SI Premium – FREE
Standard & Poor's Ratings Services today lowered its corporate credit rating on Santa Clara, Calif.-based digital entertainment technology company Rovi Corp. (Nasdaq: ROVI) to 'B+' from 'BB-'. The outlook is stable.
At the same time, we lowered the issue-level rating on the senior secured debt to 'BB-' from 'BB'. The recovery rating on this debt remains '2', indicating our expectation for substantial (70% to 90%) recovery for debtholders in the event of a payment default.
On July 31, 2013, Rovi lowered its full-year 2013 revenue and EBITDA outlook, citing greater uncertainty with respect to the timing of closing several new agreements with international businesses and Over-the-Top (OTT) content providers, such as Netflix Inc. Rovi lowered its full-year revenue outlook from the range of $623 million to $651 million, to a range of $600 million to $630 million, a decline of 3.4% at the midpoint. While the reduction in the 2013 revenue outlook is modest, our concern centers on greater revenue growth uncertainty in 2014. It is possible that ongoing negotiations with potential OTT providers could drag out into mid-2014 or later. We are less certain that Rovi can return to healthy organic growth (greater than 5%) in 2014.
Our corporate credit rating on Rovi reflects our expectation for fairly modest growth in 2014 and a decrease in debt leverage resulting from EBITDA growth and debt reduction. Over the past 18 months, Rovi has been selling underperforming assets (several of which came from its acquisition of Sonic Solutions in 2010) and reducing its cost base. We consider Rovi's business profile "fair," primarily because of its good EBITDA margin and high barriers to entry--particularly regarding its patent portfolio. These strengths are partly offset by its narrow business platform and meaningful technology risk. We assess the company's financial risk profile as "aggressive" based on its relatively high debt leverage at low 5x. We assess the management and governance as "fair."
Rovi holds more than 5,000 issued or pending patents worldwide. Many of the patents cover basic interactive programming guide (IPG) and content protection functions. Competitors have repeatedly tested barriers to entry against Rovi's IPG and content protection businesses, but Rovi or its predecessor company prevailed. Any new entrant, in addition to developing a competing product, would also likely need to license the underlying technology covered by Rovi's patents. The patents give the company a highly defensible market position because most consumer electronics manufacturers, including SONY Corp. and Samsung Electronics Ltd., are Rovi customers.
At the same time, we lowered the issue-level rating on the senior secured debt to 'BB-' from 'BB'. The recovery rating on this debt remains '2', indicating our expectation for substantial (70% to 90%) recovery for debtholders in the event of a payment default.
On July 31, 2013, Rovi lowered its full-year 2013 revenue and EBITDA outlook, citing greater uncertainty with respect to the timing of closing several new agreements with international businesses and Over-the-Top (OTT) content providers, such as Netflix Inc. Rovi lowered its full-year revenue outlook from the range of $623 million to $651 million, to a range of $600 million to $630 million, a decline of 3.4% at the midpoint. While the reduction in the 2013 revenue outlook is modest, our concern centers on greater revenue growth uncertainty in 2014. It is possible that ongoing negotiations with potential OTT providers could drag out into mid-2014 or later. We are less certain that Rovi can return to healthy organic growth (greater than 5%) in 2014.
Our corporate credit rating on Rovi reflects our expectation for fairly modest growth in 2014 and a decrease in debt leverage resulting from EBITDA growth and debt reduction. Over the past 18 months, Rovi has been selling underperforming assets (several of which came from its acquisition of Sonic Solutions in 2010) and reducing its cost base. We consider Rovi's business profile "fair," primarily because of its good EBITDA margin and high barriers to entry--particularly regarding its patent portfolio. These strengths are partly offset by its narrow business platform and meaningful technology risk. We assess the company's financial risk profile as "aggressive" based on its relatively high debt leverage at low 5x. We assess the management and governance as "fair."
Rovi holds more than 5,000 issued or pending patents worldwide. Many of the patents cover basic interactive programming guide (IPG) and content protection functions. Competitors have repeatedly tested barriers to entry against Rovi's IPG and content protection businesses, but Rovi or its predecessor company prevailed. Any new entrant, in addition to developing a competing product, would also likely need to license the underlying technology covered by Rovi's patents. The patents give the company a highly defensible market position because most consumer electronics manufacturers, including SONY Corp. and Samsung Electronics Ltd., are Rovi customers.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Wells Fargo Reiterates Overweight Rating on Tapestry Inc. (TPR)
- Deutsche Bank Downgrades Cabot Corp. (CBT) to Hold
- Genuine Parts (GPC) PT Raised to $180 at CFRA
Create E-mail Alert Related Categories
Credit RatingsRelated Entities
Standard & Poor's, Rovi Corp./Sonic Solutions, Definitive AgreementSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
