There is a growing risk of insolvency of the Israeli spyware developer NSO, which is in debt of $ 544 million – this against the background of the difficulties and the burning of cash in the face of US export restrictions, the credit rating agency Moody’s warns. The company’s credit rating is at two levels, to the level of Caa2, which is eight levels lower than the level of investment. , Unless the creditors agree to waive them.
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NSO debt consists of three types of loans. The bulk of the $ 500 million financial debt comes from two secured loans, one of $ 300 million and the other of $ 177 million, due in March 2025. In addition, NSO has a $ 30 million secured credit line with a fixed maturity date of March 2024. NSO also received a $ 14 million shareholder loan in the second quarter of 2020.
Moods cited a number of reasons that led it to downgrade NSO’s credit rating from the B3 level under review, to the Caa2 level with a negative outlook. First, Moods indicates an increase in the risk of breach of covenant (financial criterion) which is reviewed once per period. A breach of covenant may lead to an event of insolvency unless the breach is remedied or in a scenario where NSO lenders give it a waiver of compliance with the financial standard. Moody’s report shows that its leverage covenant drops to level 4 at the end of 2021, which creates significant pressure in light of the company’s recent performance.
Second, NSO’s weak liquidity profile and the company’s leverage, which is expected to reach 6.5 this year, also bother Moody’s analysts. As of the end of June 2021, NSO had $ 29 million in cash, while the company’s $ 30 million credit line was fully utilized. Given the significant gap between the covenant limit according to the covenant that NSO has assumed and stands at 4, and Moods’ assessment in relation to the company’s leverage in 2021 which stands at 6.5, it seems that the risk that NSO violated the covenant is high.
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NSO CEO Itzik Benvenisti and its founder Julio. Deny the allegations, do not respond to report
(Photos: Amit Shaal, Yaniv Blum)
At the same time, Moody’s recognizes NSO’s business performance potential in the medium term and notes the company’s unique product that is responsible for the stable business performance in recent years and the company’s high profitability. Other factors that are to NSO’s credit are the large target market that the company addresses and in which it operates, the limited number of known competitors and the high barriers that exist for those who want to enter the field.
The company, as reported in Calcalist, has recently faced harsh accusations that its Pegasus software, which infiltrates mobile phones, is being used by governments to spy on political, journalistic and human rights activists. The NSO has denied the allegations and claimed the software helps governments prevent crime and terrorism.
The new restrictions imposed by the U.S. Department of Commerce on the company this month, after the Department of Industry and Defense put it on the blacklist of companies whose activities run counter to national security interests, could further complicate the company’s efforts to strengthen its presence. For a billion dollars.
Moody’s is not afraid of the negative effects that are expected due to the trading restrictions imposed on NSO, and in the rating company’s estimation they are expected to lead to a further contraction in the company’s revenues in 2021 and beyond. A decrease in revenue will be reflected in an increase in leverage, a further weakening of the liquidity profile and an impairment of the refinancing capabilities of the existing debt.
The Israeli company was added to the same list that the Trump administration added to the Chinese Wawi as part of the US-led trade war against China at the time. The Israeli Kandiro has also been added to the NSO blacklist.
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NSO offices in the Arava
(Photo: Reuters)
According to the US administration, Israeli companies have developed spyware that has helped foreign governments track government officials, journalists, businessmen, activists, embassy staff and academics, and has allowed authoritarian governments to track regime opponents outside their countries. “These tools also allowed foreign governments to carry out cross-border repression – the practice of authoritarian governments attacking opponents, journalists and activists outside their borders to silence opposition,” said then-US Secretary of Commerce Gina Raymondo, adding that “such a practice threatens The International Order. “
The U.S. decision came just days after Itzik Benvenisti stepped into the shoes of its founder Julio as NSO CEO, while the company faces the consequences of the Pegasus project – an extensive Amnesty investigation and the Forbidden Stories press consortium centered on a leaked list of 50,000 phone numbers of customer interest NSO, when in many cases it turned out that the company’s Pegasus spyware was indeed found on devices of the same targets.
Moody’s report shows that NSO has close to 750 employees serving more than 60 customers in more than 35 countries. In 2020, NSO reported revenue of $ 243 million and EBITDA (operating profit before depreciation and amortization) of $ 99 million.
NSO did not respond to a report first released in Bloomberg.
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