S&P: IM Australia Group Pty. Ltd.'s A$250 Million Senior Secured Term Loan B Is Rated 'BB' (Recovery Rating: 2)
The '2' recovery rating indicates our expectation for substantial recovery (70%-90%; lower half of the range) of principal in the event of a payment default. Iron Mountain will use the proceeds to pay down revolver balances and for general corporate purposes. The issue-level rating is one notch above the corporate credit rating on Iron Mountain.
Pro forma for the debt offering, Iron Mountain's adjusted leverage remains virtually unchanged in the mid-5x area as of June 30, 2016. We expect leverage to decrease to the low-5x area by the end of 2017 and to below 5x by year-end 2018 as the company realizes the synergies from the Recall acquisition over the next few years.
We assess Iron Mountain's business risk profile as satisfactory, reflecting the company's position as the largest records management company globally. The business benefits from low customer attrition, high switching costs, and long-term storage contracts that provide stable and recurring revenue. The threat of digital storage reducing physical storage volume over time somewhat offsets these strengths.
The stable rating outlook on Iron Mountain reflects our expectation that the company will be able to leverage its increased size, scale, and geographic diversification to generate low - to mid-single-digit organic revenue growth while improving its operating margins.