Israeli Spyware Firm NSO Seen at Risk of Default as Sales Drop
(Bloomberg) -- NSO Group is facing a growing risk of default on around $500 million of debt amid a cash burn that’s expected to continue this year after new export restrictions from the U.S., according to Moody’s Investors Service.
The credit grading firm on Monday cut NSO’s rating by two notches to Caa2, or eight levels below investment grade. It said the Israeli spyware company is at increased risk of breaching terms of its debt agreements.
NSO has been battling accusations that its Pegasus phone-hacking technology has been used by some of its government clients to spy on political dissidents, journalists and human right activists. NSO denies the accusations and has said that its software helps governments prevent crime and terrorism.
However, new restrictions placed on the company by the U.S. Commerce Department this month could further complicate NSO’s effort to regain its footing only two years after a management buyout that valued it at about $1 billion.
NSO didn’t immediately respond to a request for comment.
NSO reported negative cash flow in 2020 due to a decline in revenue and a distribution to shareholders and is likely to continue to hemorrhage cash in 2021, according to Moody’s. The tight liquidity means the company is at risk of breaching a covenant on its debt that could put it in default unless creditors decide to waive it, Moody’s said.
The ratings firm estimates NSO’s debt load will equal about 6.5 times its earnings this year -- a level that, if sustained, could lead to further downgrades. S&P Global Ratings rates NSO at B-, or six steps into junk territory.
As of June, NSO had $29 million of unrestricted cash and had fully drawn its $30 million bank credit line, Moody’s said.
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