Fitch Places Dun & Bradstreet on Ratings Watch Negative

Published: 2025-03-28 05:49:17 ET DNB

Fitch Ratings has placed all of Dun & Bradstreet's ratings on Ratings Watch Negative (RWN), following the announcement that the company has agreed to be acquired by Clearlake Capital Group.

The RWN applies to the 'BB-' Long-Term Issuer Default Rating of Dun & Bradstreet Corporation and Dun & Bradstreet Holdings, Inc. and the company's issue-level ratings. The Rating Watch may remain in place longer than six months, depending on the timing of the transaction.

The RWN is driven by Fitch's expectation that the to-be private company will have materially higher EBITDA leverage, and this more aggressive capital structure will be maintained relative to previous levels. Credit positives will remain, including a strong base of recurring revenue with high retention rates and solid organic growth as well as a stable EBITDA margin profile.

Key Rating Drivers

Take-Private Transaction Announced: Dun & Bradstreet announced that it has agreed to be acquired by Clearlake Capital for approximately $7.7 billion that would take the company private. The company has also announced bridge loan commitments of $5.75 billion. Leverage will be materially higher if the post-transaction capital structure includes debt of $5.75 billion or more. Fitch's expectation for higher leverage is the primary driver for the RWN. Fitch will maintain the RWN until the transaction closes and will resolve it upon obtaining more information about the final capital structure and go-forward strategy.

Higher Sustained Leverage: Fitch expects EBITDA leverage will remain above 5.0x and perhaps as high as 6.0x for more than a year after the LBO is completed. There is some potential for margin expansion as a private company, but Fitch projects any expansion will be in bps not percentages. The company already manages its cost structure well, and Fitch does not expect a structural change to the business. Without margin expansion or debt reduction, which would be unusual, higher leverage will be sustained and weigh on the rating.

Stable Margin Profile: Dun & Bradstreet reported adjusted EBITDA margin of 38.9% in 2024 up from 38.6% in 2023. The ongoing challenge is to bring the EBITDA profile of its international operations (approximately 33%) closer to its North American operations (approximately 45%). Some of this can be attributed to scale, since its North American business is much larger. But improving the international margin profile has been elusive, and this raises the question of whether the company can ever return to the 40%-plus margins that it previously achieved.

Solid Organic Growth: The company's organic growth was 3.0% in 2024, 4.3% in 2023, and 3.5% in 2022. The company continues to expand its client base, especially in the small business segment. Dun & Bradstreet is also maintaining its high retention rates and using its database to create new products and services, such as analytics and sales and marketing. The company has noted particularly strong engagement related to e-commerce customers accessing self-service options. Fitch forecasts this growth will continue in 2025, and the company's emphasis on subscriptions or multiyear contracts provides strong credit protection.

Well Positioned as a Data Provider: Dun & Bradstreet is well positioned as a data and analytics processing company. The company has a long history of gathering and processing data. The demand for its products and services should continue to grow in the foreseeable future, and the company should be able to capture some of this growth. Most businesses recognize that their decisions should be informed by data and the insights derived from careful analysis of data. Dun & Bradstreet's products, proprietary data, and pedigree make it an attractive provider for many customers.

Parent-Subsidiary Relationship: Fitch establishes a parent-subsidiary relationship between Dun & Bradstreet as parent, assessing it to have a weaker standalone credit profile than its operating subsidiary and issuer of Dun & Bradstreet Corporation debt. Fitch rates the parent and subsidiary on a consolidated basis, using the weak parent/strong subsidiary approach and open access and control factors, and based on the entities operating as a single enterprise with strong legal and operational ties.

Peer Analysis

Dun & Bradstreet's business profile as a data analytics provider is supported by its market position, holding a meaningful market share of core commercial credit in North America, and an approximately 90% recurring revenue base with subscriptions representing more than three-quarters of revenue, and a long-standing customer base with high revenue retention rates. The company is broadly diversified across sectors, although it is weighted more toward North America. These metrics are generally comparable with Dun & Bradstreet's data analytics peers, the majority of which are solidly investment grade.

Dun & Bradstreet is comparable to Clarivate (BB-/Stable) in total revenue, margin profile and business model. The company is significantly smaller than Moody's (BBB+/Stable) in revenue and EBITDA and has higher leverage.

Key Assumptions

Revenue growth of 2% over the forecast period;

EBITDA margin of 38.9% in 2024 held constant in the projections;

Capital intensity modeled at 8% of revenue;

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Completion of the take-private transaction, which would likely include a downgrade as a result of higher leverage;

In the event the transaction does not close, EBITDA leverage expected to be sustained above 5.0x, FCF margin expected to be sustained below 4% or Fitch's expectation for flat to negative organic constant currency growth.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade is unlikely given the RWN.

Liquidity and Debt Structure

Dun & Bradstreet's solid liquidity position as of the end of 2024 included about $206 million of cash on the balance sheet and $840 million availability on its revolving credit facility. The company continues to generate significant FCF further bolstering liquidity.

Debt maturities are modest until the unsecured notes and term loan facility mature in 2029. The unsecured notes ($460 million) are fixed rate, and the other debt is all floating. As of Dec. 31, 2024, the company had $3,080 million outstanding on the term loan and $10 million outstanding on the revolving credit facility, both of which are due in 2029. The term loan represents 83% of Dun & Bradstreet's total outstanding debt. Fitch expects this debt will be repaid in any take-private transaction.

Issuer Profile

Dun & Bradstreet is a leading data and analytics provider of business information that informs credit and trade decisions among firms and lenders and also supports sales & marketing efforts.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.