IES Global B.V. Outlook Revised To Stable From Negative On First-Lien Term Loan R #B# CCR Affirmed

Stocks and Financial Services Press Releases Wednesday September 13, 2017 09:19
NEW YORK--13 Sep--S&P Global Ratings
NEW YORK (S&P Global Ratings) Sept. 12, 2017--S&P Global Ratings today revised its outlook on IES Global B.V. to stable from negative and affirmed its 'B' corporate credit rating on the company.

At the same time, we assigned our 'B+' issue-level rating and '2' recovery rating to IES Global's proposed $215 million senior secured first-lien term loan due 2022. The '2' recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 80%) recovery for lenders in the event of a payment default.

We intend to withdraw our issue-level and recovery ratings on the company's refinanced senior secured first-lien term loan once the transaction closes.

The affirmation and outlook revision reflect the expected improvement in the company's liquidity profile following the proposed refinancing of its senior secured first-lien term loan, which should provide it with less restrictive covenants and more manageable debt maturities. These actions also reflect IES' better-than-expected performance trends during the second quarter of 2017 and its good cash flow generation. Moreover, we now believe that a more favorable outlook for the company's end markets will allow it to increase its top-line revenue while it continues to manage its costs and further improve its operating performance.

The stable outlook on IES reflects our belief that the less-restrictive covenants, combined with continued EBITDA growth over the next 12 months, will enable the company to maintain a cushion of at least 15% under the first-lien leverage covenant on its revised term loan. We expect that IES will be able to generate positive free cash flow over the next 12 months and anticipate that its credit measures will remain in line with our expectations for the current rating, including a debt-to-EBITDA metric of 5.0x-5.5x and a FFO-to-debt ratio of 10%-15%.

We could lower our ratings on IES if the company sustains debt leverage of more than 6.5x. We could also lower our ratings if the company's liquidity and free cash generation deteriorate such that the headroom under its first-lien leverage covenant declines below 10% and it appears that IES will be challenged to remain in compliance with its covenants over the next 12 months. This could occur if weakening economic or construction activity reduces the demand for the company's products and it is unable to reduce its costs to offset the lower volumes.

Although unlikely over the next 12 months, we could raise our ratings on IES if a stronger-than-expected operating performance caused the company's credit measures to improve--including a leverage metric approaching 4.5x--and management demonstrates less aggressive financial policies that would allow it sustain this level of leverage going forward.


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