Moody's Raises Web.com Group's (WWWW) FLSS Credit Facility Rating to 'Ba2'

Moody's Investors Service upgraded Web.com Group's (Nasdaq: WWWW) first lien senior secured credit facility ratings to Ba2 from Ba3 and maintained the company's positive ratings outlook. Additionally, Moody's affirmed the company's B1 corporate family rating ("CFR"), B1-PD probability of default rating ("PDR") and SGL-2 speculative grade liquidity rating. The company's first lien senior secured credit facility consists of a $70 million revolving credit facility due 2016 and a $305 million (outstanding) term loan due 2017. The upgrade of the instrument level ratings is in accordance with Moody's Loss Given Default ("LGD") methodology and was prompted by a shift in the mix of secured and unsecured debt in Web.com's capital structure.

The first lien senior secured debt ratings upgrade reflects improved recovery prospects for the first lien debt as it represents a smaller percentage of the company's overall capital structure relative to Q3 2013 (when the $259 million unrated convertible notes were issued). Following the convertible notes transaction and during the 9 month period ended June 30, 2014 the company repaid approximately $74 million (net) of debt under the first lien secured credit facility. The rating upgrade incorporates the improved support provided by the junior convertible notes to the lower amount of outstanding first lien debt.

The positive outlook reflects Moody's expectations that Web.com's free cash flow will remain relatively strong despite the company's recent downward revision of fiscal year 2014 revenue and free cash flow guidance. The positive outlook anticipates further improvement in the company's credit metrics through continued application of free cash flow proceeds towards debt reduction. The affirmation of the B1 CFR reflects year over year improvement in the company's operating and financial results, which along with the debt repayments, have resulted in a stronger credit profile.

The following summarizes the rating activity:

Issuer: Web.com Group, inc.

Ratings affirmed:

Corporate Family Rating at B1

Probability of Default Rating at B1-PD

Speculative Grade Liquidity Rating at SGL-2

Ratings upgraded:

$70 million 1st Lien Senior Secured Revolving Credit Facility due 2016 to Ba2 (LGD2) from Ba3 (LGD3)

$305 million 1st Lien Senior Secured Term Loan due 2017 to Ba2 (LGD2) from Ba3 (LGD3)

The rating outlook is positive.

RATINGS RATIONALE

Web.com's B1 CFR reflects the company's strong competitive position as a provider of domain name registration and value added internet services to small and medium businesses, its enhanced scale and customer base (built through consolidation over the past few years), as well as its strong free cash flow relative to debt. The rating is further supported by the company's demonstrated ability and track record of applying free cash flow to reduce debt following leveraging events as well as management's good business execution, evidenced by stable subscriber retention rates and sequential increases in average revenue per user ("ARPU") and subscribers since the Network Solutions acquisition in Q4 2011. The company's credit profile benefits from good organic revenue growth prospects resulting from management's strategy of up-selling and cross-selling higher priced value added services to its customer segments.

However, the B1 rating remains constrained by the company's high financial leverage (about 4.0 times as of June 30, 2014 on a Moody's adjusted basis) in the context of a still moderate revenue base and a highly competitive market for providing web services to small and medium size businesses, which is characterized by low barriers to entry, modest pricing power for basic products, and low attach rates for add-on services that result in low ARPU. The B1 rating also incorporates Web.com's track record of acquisitive growth and high financial risk tolerance to complete acquisitions.

The SGL-2 speculative grade liquidity ("SGL") rating reflects Web.com's good free cash flow generation capabilities and access to borrowings under its $70 million revolving credit facility.

Moody's could upgrade Web.com's ratings if the company generates sustained growth in revenue and cash flow from operations and demonstrates a commitment to conservative financial policies. Web.com's ratings could be raised if Moody's believes that the company will be able to maintain EBITDA margins in the high 20% range (including Moody's standard adjustments and fair value adjustments to deferred revenue) and sustain financial leverage of less than 3.5 times total debt to EBITDA (Moody's adjusted; including fair value adjustments to deferred revenue), after incorporating the potential for acquisitions.

Conversely, Moody's could change the positive outlook to stable or downgrade Web.com's ratings if revenue growth decelerates materially, business execution weakens or increased competitive challenges cause leverage to exceed 4.5 times (Moody's adjusted) and/or free cash flow deteriorates to the low single digit percentages of total debt. Additionally, changes in financial policies that result in weakening of the balance sheet could trigger a downgrade.

The principal methodology used in this rating was Global Business & Consumer Service Industry Rating Methodology published in October 2010. 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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