Fitch Affirms and Withdraws Ratings for ADT Corporation; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed and withdrawn the Issuer Default Rating (IDR) for The ADT Corporation (NYSE: ADT) at 'BB', the outstanding senior secured notes at 'BB+/RR2' and the senior unsecured notes at 'BB/RR4'. The ratings have been removed from Rating Watch Negative and assign a Stable Rating Outlook.

Fitch downgraded ADT's IDR to 'BB' and placed the ratings on Rating Watch Negative on Feb. 17, 2016, following the announcement that ADT will be acquired by an affiliate of certain funds (the Apollo Funds) managed by affiliates of Apollo Global Management, LLC (NYSE: APO). The acquisition was consummated on May 2, 2016.

Fitch is withdrawing the ratings of ADT because the company has been taken private.

A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

ADT's ratings and Outlook reflect the company's strong brand recognition, its national footprint and leading market position, recurring revenue base and free cash flow (FCF) generation. The ratings also incorporate emerging competition from non-traditional security service providers and the company's high leverage following the consummation of the acquisition of the company by the Apollo Funds. Fitch estimates that leverage as measured by debt to EBITDA was approximately 5.1x on a pro forma basis.

Acquisition by Apollo Funds

On May 2, 2016, ADT announced the successful completion of the previously announced merger with Prime Security Services Borrower LLC (Protection 1), an affiliate of the Apollo Funds. The combined company has total annual revenues of about $4.2 billion including $317 million of recurring monthly revenue. Based on management estimates, the combined company will have about 30% market share in the North American residential monitored security market. Protection 1's robust commercial presence will also further enhance ADT's capabilities in the commercial sector.

Increased Leverage

The acquisition of ADT by the Apollo Funds was funded with $1.555 billion of new first lien term loans, $3.14 billion of new second lien loans, $750 million of preferred securities and $4.5 billion of equity contribution from funds managed by Apollo.

ADT's $3.75 billion of senior unsecured notes that remain outstanding are now guaranteed by Protection 1 and all wholly-owned subsidiaries of the combined company and are secured by a first priority interest in substantially all of the assets of the issuer and guarantors. Protection 1's existing $1.095 billion first lien term loan and $260 million second lien term loan also remain outstanding.

Protection 1 also redeemed all of ADT's outstanding $750 million 2.25% senior unsecured notes due 2017 and $500 million 4.125% senior unsecured notes due 2019 and repaid all outstanding borrowings under ADT's revolving credit facility ($355 million as of Dec. 31, 2015).

The combined company has total debt of about $10.5 billion, including $6.4 billion of first lien debt, $3.4 billion of second lien debt, and $750 million of preferred equity. Fitch estimates that leverage as measured by debt to EBITDA was approximately 5.1x (excluding any potential synergies from the transaction)on a combined pro forma basis. Fitch expects leverage will be below 5.0x by the end of 2016.

KEY ASSUMPTIONS

Fitch's key assumptions within its rating case for the issuer include:

--Low single-digit revenue growth through 2017;

--EBITDA margins of 52%-55% during 2016 and 2017;

--Debt to EBITDA settles just below 5.0x during 2016.

RATING SENSITIVITIES

Rating sensitivities are no longer relevant given today's rating withdrawal.

FULL LIST OF RATING ACTIONS

The following ratings have been affirmed and withdrawn:

The ADT Corporation

--Long-term IDR at 'BB';

--$3.75 billion of senior notes (that remained outstanding and secured by first priority interest in substantially all of the assets of the issuer and guarantors) at 'BB+/RR2'.

The Rating Outlook is Stable.

Fitch has also withdrawn the following issuer ratings for ADT:

--Unsecured revolving credit facility at 'BB/RR4';

--$750 million 2.25% senior unsecured notes due 2017 and $500 million 4.125% senior unsecured notes due 2019 at 'BB/RR4'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003764

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003764

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Monica Delarosa
Associate Director
+1-212-908-0525
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Robert Rulla
Director
+1-312-606-2311
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Monica Delarosa
Associate Director
+1-212-908-0525
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Robert Rulla
Director
+1-312-606-2311
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com