Moody’s Ratings has made several changes to its assessment of LendingTree, Inc., showing a more optimistic view of the company’s financial future. The agency affirmed LendingTree’s B3 Corporate Family Rating, which reflects the company’s current credit standing, but it upgraded the Probability of Default Rating to B3-PD from Caa1-PD, signalling that the risk of default is now seen as lower. In another positive move, Moody’s also changed its outlook for LendingTree from stable to positive.
The upgrades are tied to LendingTree’s plan to refinance its existing debt. As part of this plan, the company will launch new Senior Secured First Lien Bank Credit Facilities, which include a 5-year $75 million revolving credit facility and a 5-year $400 million term loan. Moody’s has assigned a B3 rating to these new credit facilities as well. This refinancing move is seen as a credit-positive development by Moody’s, as the proceeds from the new term loan will be used to fully repay all current outstanding debt.
Even though the overall capital structure will not change drastically, the new loan agreement includes much more relaxed covenants, which are the rules and conditions that lenders impose on borrowers. These looser covenants give LendingTree more flexibility in managing its business and finances moving forward.
Moody’s now sees encouraging signs in LendingTree’s financial trajectory. The positive outlook is driven by recent efforts to reduce debt and increased confidence in the company’s projected earnings. The agency expects LendingTree’s debt-to-EBITDA ratio to decline to around 5 times, while its free cash flow to debt ratio could rise to at least the mid-teens percentage over the next 12 to 18 months.
Looking ahead, Moody’s forecasts LendingTree’s total revenue to exceed $1 billion, with EBITDA margins improving to the high single digits. Free cash flow is expected to average close to $60 million annually, with the potential to grow past $70 million in the coming years.
The company’s strong brand reputation and wide network of financial service partners provide solid support for its credit profile. However, Moody’s also pointed out several challenges. These include high leverage, relatively small scale compared to some competitors, and exposure to economic cycles, especially interest rate shifts and overall lending activity. Additionally, emerging technologies such as generative AI pose a long-term threat to LendingTree’s lead generation business model.
Still, LendingTree’s liquidity position is seen as strong. The company had $126 million in cash at the end of the last quarter, which would be about $45 million after the refinancing is completed. It also has access to an undrawn $75 million revolving credit facility, giving it further financial flexibility.
In summary, Moody’s sees LendingTree’s refinancing plan and financial improvements as steps in the right direction. If the company continues to grow and manage its debt responsibly, it could see further credit upgrades in the future.