S&P: Dutch Corporate Services Provider TMF Group's Proposed Debt Assigned 'B' Issue Rating, '3' Recovery Rating
The company intends to use the proceeds of the proposed facilities to repay its existing super senior RCF, senior secured notes, and senior notes.
Recovery prospects for the proposed facilities are in the lower half of the 50%-70% range and are sensitive to any increase in indebtedness. The proposed financing is cov-lite, with only one springing covenant on the RCF if drawings exceed 35%. Under the proposed senior facilities agreement (SFA), the company can raise additional facilities amounting to €135 million along with an amount of pari passu secured debt such that the net senior secured leverage ratio remains below 5x, or incur additional junior indebtedness such that the fixed-charge coverage ratio remains higher than 2x. In addition, the proposed SFA includes flexibility to make dividend payments subject to the consolidated leverage ratio of 3.5x.
Our hypothetical default scenario contemplates a default in 2019, likely triggered by pressure on prices, loss of customers or the nonrenewal of contracts, an increase in wage costs resulting in a squeeze on EBITDA margins, and higher working capital requirements.
We value TMF as a going concern, in view of the group's leading market position in The Netherlands, its good geographic footprint, and relatively diversified client base.
Simulated default assumptionsYear of default: 2019EBITDA at emergence: about €85 millionEBITDA multiple: 5.0xJurisdiction: The NetherlandsSimplified waterfallGross enterprise value at default: about €425 millionAdministrative costs: €21 millionNet value available to creditors: €404 millionPriority liabilities: €12 million (1) (2)Senior secured notes claims: €761 million (1) Recovery expectation: 50%-70% (lower half of the range)(1) Priority liabilities include pension liabilities and finance leases. (2) All debt amounts include six months' prepetition interest.