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Investing.com -- Fitch Ratings has confirmed Gen Digital Inc.’s Long-Term Issuer Default Rating (IDR) at ’BB+’. The rating agency has also affirmed the ratings on GEN’s first lien senior secured term loans and secured revolver at ’BBB-’, with a Recovery Rating of ’RR1’, and its senior unsecured notes at ’BB+’/’RR4’. The Rating Outlook remains Negative.
Fitch has assigned a ’BBB-’/’RR1’ rating to GEN’s new $600 million term loan and a ’BB+’/’RR4’ rating to its new senior unsecured notes. The term loan will be used for corporate purposes, which might include the acquisition of MoneyLion Inc. or the repayment of debt. The new notes will refinance the senior unsecured notes due 2025.
Fitch’s Negative Outlook is due to the expectation that EBITDA leverage will stay above 3.5x until 2026 and then decrease in 2027. GEN is aiming to lower net leverage below 3.0x by the end of fiscal year 2027. The ratings reflect GEN’s solid free cash flow (FCF) and retention rates.
Fitch expects GEN’s leverage to increase to 3.9x following the potential acquisition of MoneyLion, with leverage remaining above Fitch’s 3.5x negative sensitivity threshold in fiscal years 2025 and 2026. However, due to GEN’s growth projections, Fitch expects the company to organically deleverage to below 3.5x by the end of fiscal year 2027. GEN has committed to reducing net leverage to below 3.0x by the end of fiscal year 2027.
The acquisition of MoneyLion would expand Gen Digital’s product portfolio beyond consumer security solutions to digital banking, consumer lending, and marketplace products. The acquisition would also bring over 18 million new customers. Fitch expects MoneyLion’s high growth rates to contribute to GEN’s overall revenue growth.
The acquisition signifies a strategic shift for GEN, which has traditionally focused on cyber threat protection. The integration of these distinct product lines may present potential challenges. As the acquisition is still in its early stages, GEN has not yet identified potential synergy benefits.
Gen Digital’s markets are fragmented and competitive. Its consumer security brands, Norton, LifeLock, and Avast, face competition from other prominent brands such as McAfee, Bitdefender, and Microsoft (NASDAQ:MSFT) Defender. MoneyLion also faces competition from large banks, financial institutions, and fintech companies like PayPal (NASDAQ:PYPL) and Block.
The acquisition increases Gen Digital’s exposure to consumer credit cycles, as interest rate and economic fluctuations can impact loan demand and repayment. However, the diversity of Gen Digital’s product lines should help mitigate some of these cyclical risks.
As of December 2024, Gen Digital had over $2 billion in liquidity, including $883 million of cash on the balance sheet and a fully undrawn, secured $1.5 billion revolving credit facility due 2027. Following the MoneyLion acquisition and the refinancing transaction, Gen Digital will have approximately 70% of its debt as floating-rate debt, and the remaining 30% is fixed-rate debt.
Fitch expects Gen Digital EBITDA leverage to reduce to below 3.5x by the end of fiscal year 2027 with the company having the cash capacity in terms of deploying FCF to debt prepayments and delevering more quickly.
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