|S&P revises CoreLogic rating outlook to positive|
Fri Nov 16, 2012 4:21pm EST
-- Irvine, Calif.-based CoreLogic Inc. maintains leadership
position in certain mortgage processing markets, a focus on cost reduction, and
moderate financial policies.
-- The company has repaid $114 million debt since December 2011 and its
financial leverage has dropped on both earnings growth and debt repayment to
2.6x in September 2012 from 3.8x in December 2011.
-- We are revising our rating outlook for CoreLogic to positive from
stable, reflecting our expectation that the company will maintain earnings
stability through origination cycles and its moderate financial policies.
-- The stable outlook also reflects our expectation that demand for
mortgage analytical data will continue to support CoreLogic's financial
performance, with less than 3x leverage, despite a likely decline of U.S.
mortgage origination activity over the coming 12 months.
On Nov. 16, 2012, Standard & Poor's Ratings Services revised the outlook on
CoreLogic Inc. to positive from stable. The 'BB' corporate credit rating
The rating incorporates our expectation that CoreLogic's leadership position
in mortgage processing markets and focus on reducing costs will support
consistent profitability, partly offset by the company's financial institution
client concentration and our expectation for lower U.S. mortgage originations
over the coming 12 months. These all result in our "fair" business risk score.
The rating also reflects our view that leverage will remain in the 2.5x range
over the coming 12 months, supported by the company's performance and cash
deployment plans, resulting in our financial risk assessment of "significant."
With revenues in the September 2012 quarter of $410 million, which increased
18% year over year, CoreLogic provides mortgage origination processing
services, mortgage analytical data, and default management services.
CoreLogic's rating reflects its leading position, offset by significant
customer concentration (the company's top 10 customers account for about 40%
of its revenues) and vulnerability to cyclical mortgage origination activity.
Barriers to entry, which include the investment and expertise CoreLogic
requires to build the databases and analytics at the core of the company's
solutions, support the company's market position. We expect the company's
revenues to remain flat over the next three years and EBITDA margins to remain
in the mid-20% area, with continued data analytics revenue growth and a
cyclical decline of its mortgage originations business.
We regard CoreLogic's financial risk profile as significant and our assessment
of the company's management and governance is "satisfactory." Our financial
risk score for CoreLogic reflects its moderate financial policies and
practices, including its discretionary debt reduction over the past nine
months. Based on our outlook for the company's earnings performance and
moderate financial policies, we expect financial leverage to continue to stay
in the 2.5x area. We expect the company to pursue tuck-in acquisitions, funded
from internal cash flow.
CoreLogic has "adequate" liquidity, with sources of cash likely to exceed uses
for the next 12 to 24 months. Sources include cash balances of about $155
million as of Sept. 30, 2012, free cash flow, and approximately $500 million
availability under a $550 million revolving credit facility due 2016.
Relevant aspects of CoreLogic's liquidity, in our view, are as follows:
-- We expect coverage of uses to be in excess of 1.2x for the next 12
months, including modest near-term debt maturities.
-- We expect the company to continue to sustain headroom under the
financial maintenance covenants of its first-lien credit facility in excess of
15% through earnings stability, including the facility's maximum debt to
EBITDA ratio of 4.0x, which drops to 3.5x on Oct. 1, 2013.
-- We expect cash uses to include capital expenditures at about 5% of
Our positive outlook reflects our expectation that the company will maintain
earnings stability through mortgage origination cycles and maintain moderate
financial policies. We could raise the ratings if CoreLogic demonstrates
stable revenue and EBITDA over the coming year, in which we expect a downturn
in the mortgage origination market, and maintains moderate financial policies.
Conversely, if we believe that the company is unlikely to maintain revenue and
EBITDA stability or moderate financial policies, we could revise the outlook
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Ratings Affirmed; Outlook Action
Corporate Credit Rating BB/Positive/-- BB/Stable/--
Senior Secured BB+
Recovery Rating 2
Senior Unsecured B+
Recovery Rating 6