S&P: Harbortouch Payments LLC Assigned 'B' Corporate Credit Rating And Stable Outlook; $370M In Refinancing Also Rated
At the same time, we assigned our 'B+' issue-level rating and '2' recovery rating to the company's first-lien credit facility, consisting of a $20 million revolver expiring in 2021 and $250 million term loan due maturing in 2023. The '2' recovery rating indicates our expectation for significant (70%-90%; at the lower end of the range) recovery in the event of payment default.
We also assigned our 'CCC+' issue-level rating and '6' recovery rating to the company's $100 million second-lien term loan maturing 2024. The '6' recovery rating indicates our expectation for negligible (0%-10%) recovery in the event of a payment default.
"Our 'B' corporate credit rating on Harbortouch reflects the company's modest revenue and processing volume market share compared with its U. S. merchant payment processor peers, moderating client attrition mitigated by increasing client adoption of its proprietary point of sale solutions, low-single-digit percentage merchant client growth, and its highly leveraged financial risk profile, with debt to EBITDA of about 5.8x at the close of the transaction," said S&P Global Ratings credit analyst John Moore.
The stable outlook reflects our expectation that Harbortouch will achieve steady operating growth and free cash flow to debt in the mid-single-digit percentages in 2016 and 2017.
We could lower the rating if the company's operating performance weakens due to competitive pressures or it adopts a more aggressive financial policy, such that leverage increases above 7x or free cash flow to debt sustains below the mid-single-digit percentages.
Considering the company's small market share and short track record of operating growth, a rating upgrade is unlikely in 2016 or 2017. Over the longer term, however, we could raise the rating if the company achieves steady operating growth with increasing client adoption of its POS solutions, such that leverage sustains below 5x.