Research: Rating Action: Moody’s Downgrades Red Planet Borrower, LLC’s CFR to B3; stable outlook

New York, September 21, 2022 — Moody’s Investors Service (“Moody’s”) has downgraded the Corporate Family Rating (CFR) of Red Planet Borrower, LLC (dba Liftoff) from B2 to B3 based on a uncertain revenue growth and cash flow outlook over the next year following the company’s recent poor performance. This year’s operating results reflect a significant and continued deviation from projections at the time of the combination approximately one year ago. Moody’s also downgraded Liftoff’s probability of default (PDR) rating to B3-PD from B2-PD and the instrument ratings on the senior secured term loan and revolving credit facility from B3 to B2. The outlook is stable.

Today’s rating actions are summarized below:

Downgrades:

..Issuer: Red Planet Borrower, LLC

…. Corporate family ranking, downgraded from B2 to B3

…. Default scoring probability, downgraded to B3-PD from B2-PD

….Secured senior bank credit facility, downgraded from B2 (LGD3) to B3 (LGD3)

Outlook Actions:

..Issuer: Red Planet Borrower, LLC

….Outlook remains stable

RATINGS RATIONALE

Liftoff’s CFR reflects Moody’s expectation that Liftoff’s full-year 2022 revenue and adjusted EBITDA margin will be nearly $150 million lower and 25 points lower, respectively, than at the time of the assignment of the initial ratings about a year ago. As a result, Moody’s expected debt to EBITDA (as calculated by Moody’s) will be well over 10x and free cash flow will be negative for the remainder of the year.

Lower advertising budgets due to macro-economic uncertainty impacting the mobile advertising industry generally only partially explain the magnitude of the company’s revenue shortfall. Poor execution in response and an apparent lack of anticipation of the impacts on Liftoff’s business from changes in the bidding dynamics of the mobile app advertising ecosystem severely impacted the company’s operational performance against Moody’s expectations .

It is unclear whether the move to integrated auctions will result in a permanent decline in operating margins given the increase in cloud computing requirements and auction mediation fees. Liftoff is trying to offset these increased costs through increased infrastructure efficiency as well as negotiating more favorable trading terms, although the realization of both is uncertain. Additionally, the prolonged delay in realizing the expected benefits of Supply Chain Path Optimization (SPO), which was an important pillar underpinning the combination of Liftoff and Vungle, may extend well into 2023. or 2024, continuing to negatively affect medium-term financial performance.

The stable outlook reflects Moody’s view that, despite the high degree of uncertainty about Liftoff’s credit profile beyond this year, the company’s financial results could improve significantly as the overall advertising market is recovering, given the company’s generally high gross margin and operating leverage. While Moody’s estimates that the level of FCF revenue at breakeven in 2023 is only marginally lower than the level forecast for 2022, the company can stabilize its margins through cost measures, providing protection against the weak ongoing macroeconomic or other operational challenges. The company expects more than $20 million in operating cost savings and a gross margin of around 80% at the end of the fourth quarter, while indicating that it may increase cost levies if operating results are weaker than expected. Moody’s updated view incorporates the realization of these cost savings.

Liftoff’s liquidity is good, reflecting a strong cash balance and ready availability to weather negative near-term free cash flow which is expected to turn positive in 2023 with a resumption of revenue growth and improved margins. The company had $111 million in unrestricted cash as of June 30, 2022 and full availability under its $150 million revolving credit facility, which Moody’s does not expect Liftoff to draw on. over the next twelve months. The term loan does not contain financial preservation covenants and the revolving credit facility has a first lien net leverage ratio of 8.75x at 35% utilization, which is not expected.

The B3 instrument rating for the Senior Secured Term Loan and Revolving Credit Facility complies with CFR B3 as secured debt represents the preponderance of funded debt.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Liftoff’s ratings could be downgraded if Moody’s expects the company’s revenue decline to accelerate, operating margins to squeeze further, or if FCF is expected to remain negative beyond this year.

While unlikely in the near term, Liftoff’s ratings could be upgraded if organic revenue growth and margin expansion improve significantly and return to high double digits, leading Moody’s to expect that adjusted debt to EBITDA is maintained below 6x, accompanied by a solidly positive free cash flow.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS

Liftoff’s governance risk is highly negative, reflecting an aggressive financial policy, concentrated private equity ownership, historical debt-funded distributions, lack of public financial disclosure, and lack of board independence. . The credibility and track record of Liftoff’s management is a very negative factor given the company’s substantial underperformance against expectations in the year following the assignment of initial debt ratings in September 2021.

Red Planet Borrower, LLC (dba Liftoff), headquartered in Redwood City, CA, is an independent mobile app marketing and advertising platform. The company was created in September 2021 through the combination of Liftoff Mobile, Inc. and Vungle Inc., two portfolio interests of Blackstone Inc., which retains majority ownership of the combined entity. According to Moody’s, net revenue is expected to be around $400 million for the full year of 2022.

The main methodology used in these ratings is that of business and consumer services published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356424. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the announced credit rating metric(s) described above.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Kevin McNeil
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
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Stephen Sohn
Associate General Manager
Corporate Finance Group
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Customer service: 1 212 553 1653

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