S&P: RP Crown Parent LLC $400 Million Unsecured Notes For Recapitalization Rated 'CCC+' (Recovery Rating: '6')
We expect to raise the corporate credit rating to 'B' from 'CCC+', remove it from CreditWatch where we placed it with positive implications on Aug. 22, 2016, and assign a stable outlook after the transaction closes. The prospective upgrade reflects the improved cash flow that will result from the nearly $70 million in interest expense savings and the extension of the company's debt maturities. We expect funds from operations (FFO) cash interest coverage to increase to the high-2x area from 1.4x currently, and annual unadjusted free operating cash flow (FOCF) to increase to the $100 million area or higher from last-12-months FOCF of negative $8 million.
For the complete corporate credit rating rationale, see our report on RP Crown Parent LLC, published Sept. 9, 2016, on RatingsDirect.
RECOVERY ANALYSISKey analytical factorsOur hypothetical default scenario contemplates a default in 2019 as a result of reduced investment spending by manufacturing and retail customers due to an economic downturn, and improved competitive offerings from larger players such as Oracle and SAP. We continue to value the company on a going concern basis using a 6x multiple of our projected emergence EBITDA, which is at the high end of the range we use for software companies. Simulated default assumptionsSimulated year of default: 2019EBITDA at emergence: $153 millionEBITDA multiple: 6xThe revolving credit facility is 85% drawn at defaultSimplified waterfallNet enterprise value (after 5% administrative costs): $874 millionValuation split (obligors/nonobligors): 70%/30%Value available to secured creditors: $833 million---------------------------------------------------Secured first-lien debt claims: $1.32 billion-- Recovery expectations: 50%-70% (upper half of the range)Value available to unsecured claims: $41 millionUnsecured claims: $430 million--Recovery expectations: 0% to 10%Note: All debt amounts include six months of prepetition interest. The collateral value equals asset pledge from obligors after priority claims plus equity pledge from nonobligors after non-obligor debt.