Blackboard Ratings Affirmed Following Transact Divestment; Outlook Remains Negative

  • U.S education software provider Blackboard Inc. has entered into an agreement to sell its Transact business segment to Reverence Capital Partners for over $700 million, to be completed in the second quarter of 2019. We expect the company to use substantially all net proceeds to repay first-lien debt.
  • While we expect the transaction to improve near-term liquidity and covenant headroom, Blackboard's operational performance has been inconsistent over the past few years despite the release of newer products. We also believe that sustained revenue growth and business stabilization potential are uncertain due to headwinds from increased competition in its mature learning management systems (LMS) software segment. We believe the slower-than-expected newer product traction and uncertain business turnaround over the coming year could jeopardize a successful refinancing of upcoming debt maturities.
  • We affirmed the 'CCC+' issuer credit rating on Blackboard and issue-level ratings of 'B-' and 'CCC-' on the company's first-lien debt and second-lien notes, respectively.
  • The unchanged negative outlook reflects uncertainty related to a significant and sustained business turnaround over the coming year. We expect continued revenue declines to weigh on Blackboard's profitability and FOCF generation. We believe these factors could make refinancing of upcoming debt maturities challenging.
NEW YORK (S&P Global Ratings) April 2, 2019—S&P Global Ratings today took the 
rating actions listed above. The ratings affirmation reflects our view of 
Blackboard's weak projected cash flow prospects, inconsistent operational 
performance, and a highly competitive landscape. We believe these factors and 
mature market conditions will challenge prospects for sustained business 
improvement and jeopardize the company's refinancing. 

The negative outlook reflects the company's inconsistent operational 
performance, continued high leverage, and weak FOCF generation. We expect 
strong competition in Blackboard's core LMS industry and slower-than-expected 
traction of newer products to create uncertainty related to a significant and 
sustained business turnaround. We think the lack of significant business 
improvements over the coming year could jeopardize the company's ability to 
refinance upcoming debt maturities. 

We could lower our issuer credit rating on Blackboard if the company does not 
sustain momentum in its business improvement and revenue stabilization, or if 
its liquidity position deteriorates, leading us to believe a debt 
restructuring is likely or its ability to refinance diminishes.

We could revise our outlook to stable if the company makes progress toward 
sustained revenue and business improvement and better FOCF generation, leading 
us to believe the company's refinancing prospects have improved and the 
company is able to address upcoming debt maturities.
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