Opportunistic tuck-in acquisitions, business investments and higher cash taxes are increasing near-term liquidity and ratings pressure. CoreLogic Inc.’s fourth-quarter 2022 and first-quarter 2023 operating results were modestly better than we expected despite the mortgage market worsening over that period. As of mid-June, the Mortgage Bankers Association (MBA) forecasted a 26% decline in mortgage loan originations in 2023, which is worse than the 19% decline it expected as of late November 2022. CoreLogic’s resilience has come from achieving cost savings, market share growth, interest income on cash deposits held in the property tax business, and growth in its non-mortgage-sensitive businesses. Nevertheless, we now forecast a total cash burn in 2023 of about $140 million, which is worse than we expected, primarily because of higher-than-expected cash taxes, along with opportunistic acquisition spending and modestly higher capex. While we believe these opportunistic tuck-in acquisitions and business investments are good for the long-term health of the business and should help it grow market share, they add stress on liquidity and our rating over the short term.
CoreLogic's still-ample liquidity, long-dated maturities, and our forecast for cash generation in 2024 support the rating. As of March 31, 2023, the company had about $175 million cash and full availability under its $500 million revolver due in 2026, which offers cushion to absorb the temporary cash burn. CoreLogic doesn't have any other meaningful debt maturities until its $750 million senior secured notes mature in May 2028 and $3.75 billion first-lien term loan matures in June 2028. Since the company will not have any large calls on cash for several years, we believe it can endure short-term challenges until the mortgage market begins to recover, which we expect in 2024. We still forecast positive reported free operating cash flow (FOCF) and lease-adjusted FOCF to debt between 1%-3% in 2024. The improvement in 2024 is due to higher mortgage originations, the continued realization of cost savings, exiting certain unprofitable businesses, lower restructuring and transaction costs, and a modest benefit from acquisitions. However, even the robust percentage growth in mortgage originations we expect in 2024 would leave volumes significantly lower than the 2021 peak, so we expect a slow recovery. The key risk to our forecast is the potential for even lower mortgage originations, most likely caused by higher interest rates or tighter mortgage lending standards coupled with higher than expected capital spending and acquisitions that drain the company’s liquidity.
Ratings Score Snapshot
Recent Research
CoreLogic Inc. Outlook Revised To Negative From Stable On Mortgage Market Trends; 'B-' Rating Affirmed, Dec. 16, 2022
Company Description
CoreLogic is a global property information, analytics, and data-enabled services provider operating primarily North America. The company combines public, contributory, and proprietary data to provide coverage of property, mortgages, and other encumbrances; consumer credit; tenancy; location; hazard risk; and related performance information. It serves real estate and mortgage finance, insurance, capital markets, and the public sector. Irvine, Calif.-based CoreLogic was incorporated in 1894. The company reports revenue in two segments: Property Intelligence & Risk Management (PIRM) and Underwriting & Workflow Solutions (UWS).
Outlook
The negative outlook reflects the heightened risk of a downgrade if the mortgage market continues to deteriorate and we expect CoreLogic will burn cash on a sustained basis, rendering its capital structure unsustainable.
Downside scenario
We could lower the rating if we believed the company's capital structure were unsustainable, which could result from greater-than-expected declines in mortgage originations, lower profitability due to the inability to manage costs and achieve cost-savings targets, operating cash flow that significantly lags reported profitability due to unfavorable working capital, or a more aggressive financial policy. Signs that its capital structure is unsustainable could include a combination of:
- Persistent negative discretionary cash flow generation;
- Depleted cash balances or limited revolver availability;
- Leverage sustained above 10x;
- Minimal covenant cushion; or
- Insufficient EBITDA to cover fixed charges.
Upside scenario
We could revise the outlook to stable if we forecast CoreLogic will improve leverage below 10x and generate cash on a sustained basis. This could happen if:
- Mortgage originations trough in 2023 and rise again in 2024;
- The company realizes its cost-saving initiatives and otherwise manages expenses well; and
- Restructuring costs drop considerably.
Key Metrics
| CoreLogic Inc.--Forecast summary | |||||
|---|---|---|---|---|---|
| Period ending | Dec-31-2021 | Dec-31-2022 | Dec-31-2023 | Dec-31-2024 | Dec-31-2025 |
| (Mil. $) | 2021a | 2022a | 2023e | 2024f | 2025f |
| Cash flow from operations (CFO; reported) | 363 | 65 | 25 | 191 | 255 |
| Free operating cash flow (FOCF; reported) | 240 | (52) | (85) | 81 | 145 |
| Debt | 5,416 | 5,293 | 5,225 | 5,182 | 5,144 |
| Interest expense (reported) | 176 | 320 | 371 | 330 | 302 |
| Capex (reported) | 123 | 116 | 110 | 110 | 110 |
| Cash and short-term investments (reported) | 385 | 240 | 96 | 136 | 240 |
| Adjusted ratios | |||||
| Debt/EBITDA (x) | 9.1 | 13.0 | 11.8 | 9.1 | 8.6 |
| FFO/debt (%) | 3.7 | (0.2) | 0.3 | 3.6 | 4.8 |
| EBITDA interest coverage (x) | 3.3 | 1.2 | 1.2 | 1.7 | 1.9 |
| CFO/debt (%) | 6.3 | 0.9 | 0.2 | 3.4 | 4.6 |
| FOCF/debt (%) | 4.8 | (0.7) | (1.3) | 1.9 | 3.1 |
| Annual revenue growth (%) | 34.8 | (19.5) | (4.6) | 8.8 | 5.0 |
| Rating Component Scores | |
|---|---|
| Foreign currency issuer credit rating | B-/Negative/-- |
| Local currency issuer credit rating | B-/Negative/-- |
| Business risk | Fair |
| Country risk | Very Low |
| Industry risk | Intermediate |
| Competitive position | Fair |
| Financial risk | Highly Leveraged |
| Cash flow/leverage | Highly Leveraged |
| Anchor | b |
| Diversification/portfolio effect | Neutral (no impact) |
| Capital structure | Neutral (no impact) |
| Financial policy | FS-6 (no impact) |
| Liquidity | Adequate (no impact) |
| Management and governance | Fair (no impact) |
| Comparable rating analysis | Negative (-1 notch) |
| Stand-alone credit profile | b- |
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate Issuers, Dec. 7, 2016
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
| Primary Contact: | Elton Cerda, New York 1-212-438-9540; elton.cerda@spglobal.com |
| Secondary Contact: | Daniel Pianki, CFA, New York 1-212-438-0116; dan.pianki@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.