Moody's pares System1

Moody's Investors Service said it downgraded System1, Inc.'s corporate family rating to B3 from B2, probability of default rating to B3-PD from B2-PD, and the ratings on the backed senior secured bank credit facilities issued by Orchid Merger Sub II, LLC, consisting of a $50 million revolving credit facility and a $400 million term loan B, to B3 from B2. The outlook is stable. Previously, the rating was on review for downgrade. Moody's also assigned System1 an SGL-2 speculative grade liquidity rating.

This action concludes the review for downgrade on System1's ratings started on Oct. 20, the agency said in a press release.

“The downgrade reflects System1's smaller revenue scale, continued high financial leverage, and increased vulnerability to economic cycles after the sale of its Total Security division, a subscription fee-based revenue model. Although the sale of Total Security has substantially improved System1's liquidity profile by injecting $240 million in proceeds, revenue is now smaller and largely dependent on the advertising market, which tends to be more cyclical in nature. Pro forma for the above-mentioned sale, Moody's projects System1's total debt-to-EBITDA (inclusive of Moody's adjustments) and net debt to EBITDA will be 4.7x and 1.9x, respectively at year-end 2024,” Moody’s said in a statement.

The stable outlook reflects a forecast that over the next 12 to 15 months, System1 will expand revenue and EBITDA organically, lower leverage and maintain good liquidity to meet all its operating needs, Moody’s said.

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