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Israel’s NSO Group at risk of ‘defaulting’ on $500m after US blacklisting

Moody’s downgrades firm’s credit grading to poor amid trade restrictions and expected cash flow problems

A logo adorns a wall on a branch of the Israeli NSO Group company, near the southern Israeli town of Sapir, on August 24, 2021. (AP/Sebastian Scheiner)
A logo adorns a wall on a branch of the Israeli NSO Group company, near the southern Israeli town of Sapir, on August 24, 2021. (AP/Sebastian Scheiner)

Israeli spyware firm NSO Group is facing a growing risk of defaulting on about $500 million of debt amid upcoming cash flow issues following a blacklisting by the US Department of Commerce earlier this month.

Moody’s downgraded NSO’s credit rating to Caa2 (rated as poor quality and very high credit risk) on Monday and said the firm was at increased risk of breaching debt agreement terms.

“The company has a relatively low share of recurring revenues and is, unlike many other software companies, highly dependent on new license sales which we believe can become increasingly difficult given the actions taken against NSO,” Moody’s said.

In early November, NSO Group and another Israel firm, Candiru, considered its competitor in the cyber-surveillance market, were accused of providing spyware software to governments that was ultimately turned on journalists and activists and were added to a US list of foreign companies that engage in malicious cyber activities.

The two firms “were added to the Entity List based on evidence that these entities developed and supplied spyware to foreign governments that used these tools to maliciously target government officials, journalists, businesspeople, activists, academics, and embassy workers,” according to a Commerce Department statement.

Moody’s said the trading restrictions on NSO “will possibly lead to a further revenue contraction in 2021 and beyond, resulting in rising leverage metrics and a further weakening of the liquidity profile of NSO as well an increasing refinancing risk.”

A branch of the Israeli NSO Group company, near the southern Israeli town of Sapir, on August 24, 2021. (AP Photo/Sebastian Scheiner)

The decision to blacklist NSO and Candiru came several months after a group of Democratic lawmakers called on US President Joe Biden to take a series of punitive measures against NSO Group in light of reports in June that the firm had leased military-grade spyware to authoritarian regimes. Among the steps proposed was adding the Israeli firm to the Entity List.

The US State Department has indicated that the Biden administration would not be “taking action against countries or governments” where the entities are located.

In response to the blacklist, NSO Group reportedly sought support from Prime Minister Naftali Bennett, claiming in a letter that it was being targeted for political reasons in a campaign by anti-Israel organizations. The letter was also sent to Defense Minister Benny Gantz, Foreign Minister Yair Lapid and Finance Minister Avigdor Liberman.

NSO Group has faced a torrent of international criticism over allegations it helps governments spy on dissidents and rights activists. NSO insists its product is meant only to assist countries in fighting crime and terrorism.

The firm’s flagship spyware, Pegasus, is considered one of the most powerful cyber-surveillance tools available on the market, giving operators the ability to effectively take full control of a target’s phone, download all data from the device or activate its camera or microphone without the user knowing.

In the latest in a string of accusations against NSO Group, independent investigations published last week by the University of Toronto and Amnesty International found that cellphones belonging to at least six Palestinian rights activists were hacked using Pegasus.

Last week, US Deputy Treasury Secretary Wally Adeyemo visited Israel as part of a wider regional trip to discuss building cooperation on cybersecurity and ransomware, countering terrorist financing, and post-COVID economic recovery.

Adeyemo held meetings with Liberman and National Cyber Directorate Director Yigal Unna, after which the US announced a new partnership with Israel to expand bilateral cooperation in combatting ransomware.

The expanded cooperation will occur under the auspices of a broader US-Israel task force on fintech innovation and cybersecurity.

The regional trip came on the heels of a series of ransomware attacks in the US this year targeting critical infrastructure, food manufacturers, a police department, the NBA, and private industry companies.

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