S&P Report – Blackboard Plans to Raise $60 Million to Help Finance Acquisitions of Moodlerooms and netSpot

April 18 - Overview
     -- U.S. educational technology company Blackboard plans to raise $60
million in an incremental first-lien term loan to help finance its
acquisitions of Moodlerooms and netSpot.
     -- We are assigning issue-level ratings to the existing first- and
second-lien facilities.
     -- We also are assigning a 'B+' issue-level rating to the additional
financing, with a recovery rating of '2'.
     -- The stable outlook reflects our expectations that leverage will
decline over the near term due to growth in EBITDA, as well as cash generation
for debt reduction.	

Rating Action
On April 18, 2012, Standard & Poor's Ratings Services assigned its 'B+' issue
level rating (one notch higher than the corporate credit rating) to
Washington, D.C.-based Blackboard Inc.'s proposed $60 million incremental term
loan with a recovery rating of '2',indicating substantial (70%-90%) recovery
of principal in the event of a payment default.	

At the same time, we also assigned 'B+' issue-level ratings to the company's
$100 million revolver due 2016 and $780 million first-lien term loan due 2018.
Both have recovery ratings of '2', indicating substantial (70%-90%) recovery
in the event of a payment default.	

In addition, we assigned our 'CCC+' rating to Blackboard's $350 million
second-lien term loan due 2019. The recovery rating is '6', indicating
negligible (0%-10%) recovery in the event of a payment default.  	

We also affirmed our 'B' corporate credit rating on Blackboard. The outlook is
stable.	

Rationale
Standard & Poor's believes Blackboard's "highly leveraged" financial risk
profile more than offsets the company's "fair" business risk profile. We
estimate pro forma adjusted debt leverage over 9x following its recently
announced acquisitions of Moodlerooms and NetSpot and that it will decline
over the coming year, given our expectation for continued revenue and EBITDA
growth and the benefit from cost savings already implemented. 	

The company has a leading position in the educational technology market, with
its products allowing users to deliver Web-based teaching, course and content
management, community collaboration, rapid communication, and on- and
off-campus e-commerce facilitation. The company derives more than half of its
revenues from the higher education market, and the recent combination with
Edline will enable it to solidify its position and cross-sell its products in
the K-12 market as well. In addition, the purchase of Moodlerooms and netSpot
will enable the company to further its offerings in the open source market.	

Standard & Poor's views Blackboard's business risk profile as fair. Although
the company benefits from high renewal rates and a broad suite of product
offerings, the market is highly competitive and we view barriers to entry as
moderate. In addition, we view the company's product market focus as somewhat
narrow, with Blackboard deriving more than 60% of revenues from its Blackboard
Learn product. The company's leading position in the rapidly growing
educational software technology market, a significant base of recurring
revenues, and high client retention rates partly offset these factors.
Additional opportunities for growth are present in the K-12, international,
and open source markets, which also present cross-selling opportunities.	

Eighty-five percent of revenues are from recurring software licensing
renewals, and hosting and support contracts; the company enjoys renewal rates
of more than 90%, which enabled it to maintain relatively stable performance
through the recent downturn. Revenues for the 12 months ended Dec. 31, 2011
grew 21% to $568 million, reflecting a combination of acquisitions, organic
growth, and a revenue recognition policy change for its Blackboard Transact
product. EBITDA margins of 24% were affected by increased costs from
acquisitions. As the company absorbs these costs and realizes efficiencies, we
expect margins to return to higher historical levels.	

We view Blackboard's financial risk profile as highly leveraged. Our
assessment primarily reflects the high debt associated with the 2011 $1.64
billion all-cash going-private transaction between Blackboard and the
affiliates of Providence Equity Partners, as well as the debt associated with
the Moodlerooms and netSpot acquisitions. Pro forma for these two
acquisitions, estimated adjusted pro forma year-end leverage was over 9.0x,
which we expect to improve to about 7.5x by 2012. This anticipated improvement
reflects our expectation of revenue growth in the upper-single-digit range and
improvement in current margins, reflecting recently implemented cost savings
as well as operating leverage.	

Liquidity
We view Blackboard's liquidity as "adequate." We expect the company to retain
a minimum of $50 million of cash and short-term investments and to have access
to a $100 million revolver. Because of its seasonal cash generation
cycle--with renewals occurring in the third and fourth quarters, when
Blackboard receives the cash--the company typically has negative free
operating cash flow (FOCF) in the first half of the year and positive cash
flow in the second half, when it typically would pay down the revolver. The
company will not have any significant debt maturities until 2018.	

Additional relevant aspects of Blackboard's liquidity are:
     -- We expect coverage of uses to be more than 1.2x in the
near-to-intermediate term.
     -- Net sources are likely to be positive, even if EBITDA were to drop 20%
from current levels.
     -- No additional material acquisitions are likely in the near term and
Blackboard could use excess cash flow to further reduce debt.
     -- The bank agreement covenant calculation adds back to EBITDA the change
in deferred revenue. Using this calculation, initial pro forma adjusted
leverage would be a lower 6.6x and compares with an actual year-end 2011
figure of 6.3x.
     -- A significant covenant cushion has been set for both loan tranches.	

Recovery analysis
For the complete recovery analysis, see Standard & Poor's recovery report on
Blackboard, to be published separately on RatingsDirect. 	

Outlook
The outlook is stable. While leverage is high at the outset, we expect it to
decline somewhat over the coming year due to growth in both EBITDA and
revenues. This would reflect the growing product offering, and cash generation
for debt reduction. 	

An upgrade over the near term is unlikely, as the company's highly leveraged
debt structure is a limiting factor. We could lower the rating if increased
competitive factors lead to a deteriorating business profile or further
debt-financed acquisitions prevent leverage from dropping to the high-7x level
over the next year.	

Related Criteria And Research
     -- Global Technology Ratings Trend Shifts To Negative In The First
Quarter, April 11, 2012
     -- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, March
29, 2012
     -- U.S. Technology Companies' Liquidity Is Higher, For Now, Jan. 18, 2012
     -- Reshuffling The Debt: Global High-Tech M&A Activity Accelerates, Oct.
13, 2011
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Global
High Technology Industry, Oct. 15, 2009
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	

Ratings List	

Ratings Affirmed
Blackboard Inc.
 Corporate Credit Rating                B/Stable/--        	

New Ratings
Blackboard Inc.
 Senior Secured
  US$60 mil 1st-lien incremental term   B+
  bank ln due 2018
   Recovery Rating                      2
  US$100 mil revolver due 2016          B+
   Recovery Rating                      2
  US$780 mil 1st-lien term ln due 2018  B+
   Recovery Rating                      2
  US$350 mil 2nd-lien term ln due 2019  CCC+
   Recovery Rating                      6                  	

Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
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