S&P: Landslide Holdings Inc. 'B' Rating Affirmed On Capital Structure Changes; Outlook Stable; Ratings Assigned To New Debt
At the same time, we assigned our 'B+' issue-level rating to the company's proposed $515 million senior secured first lien term loan and $20 million revolving credit facility. The '2' recovery rating on the entire senior secured debt indicates our expectation of substantial (in the lower half of the 70%-90% range) recovery in the event of a payment default.
We also assigned our 'CCC+' issue-level rating to the company's proposed $195 million senior secured second lien term loan. The '6' recovery rating on the notes indicates our expectation for negligible (0%-10%) recovery of principal in the event of a payment default.
"The ratings reflect our view of LANDesk's highly leveraged financial risk profile and our projection that leverage will drop to under 7x over the next 12 months (from current adjusted leverage of mid-7x pro forma for the proposed transaction and the AppSense acquisition during 2016) as transaction-related expenses roll off, the company improves margins at AppSense by executing on synergies, and it generates modest top-line growth," said S&P Global Ratings' credit analyst Minesh Shilotri.
The stable outlook reflects our projection that Landslide Holdings will successfully integrate the AppSense acquisition and maintain its meaningful base of recurring revenue, while de-levering to below 7x and generating free cash flow of about $50 million over the next 12 months.
We could lower the rating if increased competition, integration challenges with AppSense, debt-financed acquisitions, or shareholder returns result in leverage staying above the low 7x area on a sustained basis.
We are unlikely to raise the rating during the next year based on our view that the company's private equity ownership structure precludes sustained leverage reduction.