Moody's: iPayment loan Ba2, notes B3 and Caa1

Moody's Investors Service said it affirmed iPayment, Inc.'s B2 corporate family rating and assigned a Ba2 (LGD2, 19%) rating to the company's $450 million of senior secured credit facilities, a B3 (LGD4, 68%) rating to its $375 million of senior notes due 2018 and a Caa1 (LGD6, 92%) rating to $150 million of senior payment-in-kind notes due 2018 being issued by its direct parent iPayment Holdings, Inc.

Moody's changed iPayment's outlook to stable from negative and raised the company's liquidity rating to SGL-2 from SGL-3, reflecting improved liquidity and extension of debt maturities upon closing of the proposed refinancing.

The company plans to use the net proceeds of about $909 million, including a partial draw under its new revolver, to refinance $748 million of existing debt, redeem the indirect equity interest held in the company by its majority shareholder for $118.5 million and pay transaction fees and expenses.

The affirmation reflects the expectations that the company's management will prioritize deleveraging over the next 12 to 24 months and drive the debt-to-EBITDA ratio towards its target of 5.0 times over the intermediate term, the agency said.

The ratings consider the company's high debt-to-EBITDA leverage, small scale relative to a number of large scale transaction processors and highly competitive operating environment as well as a track record of good business execution reflected in growth in EBITDA margins over the past several years and consistent levels of free cash flow generation, the agency said.

The stable outlook reflects the expectations that iPayment's leverage will progressively decline towards 6.0 times at year-end 2012 and that the company will generate stable free cash flows in the range of 5%-to-7% of total debt driven by revenue growth and healthy EBITDA margins in the 40% range, the agency said.

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