SAI Global Holdings I (Australia) Pty Ltd. Outlook Revised To #B# Ratings Affirmed

Stocks and Financial Services Press Releases Thursday July 5, 2018 16:00
MELBOURNE--5 Jul--S&P Global Ratings

MELBOURNE (S&P Global Ratings) July 5, 2018--S&P Global Ratings said today that it has revised its rating outlook to negative from stable on SAI Global Holdings I (Australia) Pty Ltd. We also affirmed the long-term issuer credit rating on the company at 'B'.

At the same time, we affirmed our issue ratings on the company's senior secured first-lien debt at 'B' and on the second-lien debt at 'CCC+'. We affirmed the recovery ratings at '3' and '6' on the first- and second-lien debt, respectively.

SAI Global is a provider of risk management services in large global markets and property settlement services in Australia.

We revised the outlook to negative to reflect increased uncertainty over SAI Global's deleveraging path. Cost-out delays, an expanded sales and marketing function, and softer trading conditions have weakened SAI Global's operating performance compared with our expectations. The extent to which the company will realize an enduring benefit from past restructuring initiatives is unclear.

SAI Global's key credit metrics are likely to have further deteriorated during the second half ended June 30, 2018. Operating expenses have increased as the company bolsters its commercial team to accelerate growth in its risk segment. In addition, the realization of cost-out initiatives is not likely to gather pace until at least fiscal 2019. Lower transaction volumes as well a structural loss of market share in the mortgage settlement market have worsened the company's property segment.

In our opinion, management turnover and internal restructuring have disrupted parts of the business. However, we believe the new management team is taking a more disciplined approach to the company's operating and financial performance. For example, the business is moving toward business unit reporting, which should promote greater transparency and accountability of costs.

Notwithstanding the outlook revision, we continue to view the company's reasonably established market position across its suite of services, brand recognition in Australia, and modest global footprint to be credit-supportive factors.

The company received A$58 million of new equity from its financial sponsor Baring Asia Private Equity Fund VI (Baring Asia). The proceeds were used to fully repay its A$51 million revolving credit facility. Despite the equity injection, we believe the company's capital structure has limited flexibility to support business investment. To this end, we expect that SAI Global will rely on its financial sponsor to fund growth opportunities.

SAI Global's high cash conversion rate should generate healthy levels of positive free operating cash flow and support deleveraging over the next 12-24 months.

The negative outlook reflects challenging operating conditions and uncertainty regarding the SAI Global's deleveraging path. Our base-case forecast assumes that the company will maintain revenue at its current level and substantially achieve its targeted cost savings over fiscal 2019. To this end, we expect the company's debt-to-EBITDA ratio to settle in the mid-to-high 6x range and EBITDA interest coverage above 2x over the next year.

The negative outlook does not incorporate the divestment of any business lines, or major acquisitions, nor do we do expect any shareholder distributions.

We could lower the rating if a further deterioration of market conditions or inability to realize the benefit of past cost saving measures result in its debt-to-EBITDA ratio being at or above 7x from fiscal 2019. We could also lower the rating if the company is unable to generate healthy free operating cash flow.

We could affirm the rating with a stable outlook if we believe the company can sustain its debt-to-EBITDA ratio below 7x.

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