Investing.com -- On April 30, 2025, Moody’s Ratings upgraded the corporate family rating (CFR) of Shift4 Payments, Inc. by one notch to Ba3 from B1. The probability of default rating was also lifted to Ba3-PD from B1-PD. The senior unsecured notes issued by Shift4’s wholly owned subsidiary, Shift4 Payments, LLC, were affirmed at Ba3 rating.

Moody’s also assigned a Ba1 rating to the proposed senior secured first lien bank credit facilities of Shift4 Payments, LLC. These facilities include a new term loan B and a proposed upsized revolving credit facility. The ratings are dependent on the final terms and conditions.

The Speculative Grade Liquidity (SGL) Rating of Shift4 remained at SGL-1. The ratings outlook for both Shift4 Payments, Inc. and Shift4 Payments, LLC was revised to stable from positive.

Shift4 plans to use the net proceeds from the proposed term loan B, along with the announced mandatorily convertible preferred stock and anticipated additional unsecured debt, to fund its acquisition of Global Blue Group Holdings AG. The deal is expected to close by the third quarter of 2025, subject to regulatory approvals and other customary closing conditions.

The upgrade of the CFR reflects Moody’s expectation for Shift4’s debt to EBITDA ratio to fall to below 4x by the end of 2026 from around 5x at the end of 2025. This is anticipated to occur following the closing of the Global Blue acquisition. The company’s leverage reduction will be supported by the full year contribution of Global Blue’s financial results, as well as continued solid organic revenue growth and modest margin expansion of standalone Shift4 results.

The upgrade also reflects Shift4’s enhanced end market and geographic diversification as a result of its strategic expansion into key verticals and targeted acquisitions, inclusive of Global Blue. Recent tariff announcements have led to elevated global economic uncertainty, which will weigh on economic growth and consumer demand if the tariffs remain in place. However, Shift4’s de-leveraging case can withstand a lower growth and margin scenario.

Shift4 has not articulated an explicit financial leverage target, but the company has steadily reduced debt to EBITDA to about 3.7x at December 31, 2024 pro forma for the repayment of the 2025 convertible note from about 14x as of December 31, 2021. Over this time, Shift4 has continued to fund organic growth and acquisitions, increasing its scale and diversification.

Moody’s expects Shift4 to continue to make investments in its business, supported by the company’s higher earnings and free cash flow generation both as a result of the Global Blue acquisition and underlying growth. This expectation is further supported by free cash flow rising from breakeven in 2021 to nearly $500 million in 2024.

The senior unsecured notes are rated Ba3, in line with the CFR. The notes benefit from subsidiary guarantees that the company’s senior unsecured convertible notes do not possess. The senior first lien secured term loan B and revolver are rated Ba1, two notches above the CFR, reflecting its preferential access to realization proceeds as well as loss absorption provided by junior ranking unsecured notes and subordinated convertible notes.

The SGL-1 rating reflects Moody’s assessment of Shift4’s liquidity profile as very good, supported by expectations for continued strong free cash flow generation over the next 12 to 15 months and available cash balances of roughly $575 million at December 31, 2024, pro forma for the acquisition and repayment of the 2025 convertible notes. Liquidity is further supported by Shift4’s undrawn proposed upsized $550 million senior first lien secured revolving credit facility expiring 2029.

The stable outlook reflects Moody’s expectation of around low teens combined growth and a low 20% combined EBITDA margin resulting in debt to EBITDA of mid- to high 3x in the year following the transaction close. Additionally, Moody’s expects Shift4 to generate around $600 million in annual free cash flow to debt of around a mid-teens percentage.

Moody’s Ratings has corrected the display on its websites to reflect that the issuer for the senior global notes due 2026 is Shift4 Payments LLC, and the Corporate Family Rating, Probability of Default Rating and Speculative Grade Liquidity Rating, currently attributable to Shift4 Payments Inc (NYSE: FOUR )., were attributable to Shift4 Payments LLC prior to August 12, 2024.

Shift4’s credit impact score was changed to CIS-3 from CIS-4. This primarily reflects reduced governance risk as a result of Shift4’s track record of de-leveraging following acquisitions and the explicit commitment to de-lever following the completion of the Global Blue acquisition.

The ratings could be upgraded if Shift4 maintains a more conservative financial policy, possibly including articulation of an explicit leverage target. The ratings could also be upgraded if the company’s scale increases materially. The ratings could be downgraded if debt to EBITDA is expected to be sustained above 4x on more than a temporary basis. The ratings could also be downgraded if Shift4’s revenue growth were to decelerate or if its adjusted EBITDA margin were to contract from current levels.

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