S&P: Pike Corp. Upgraded To 'B+' On Improved Operating Performance, Outlook Stable; First - And Second-Lien Debt Rating Raised
At the same time, we raised our issue-level rating on the company's senior secured revolver and first-lien term loan to 'BB' from 'B+' and revised our recovery rating on the revolver and term loan to '1' from '2'. The '1' recovery rating indicates our expectation for very high recovery (90%-100%) in a payment default scenario.
In addition, we raised our issue-level rating on the company's second-lien term loan to 'B-' from 'CCC+'. The '6' recovery rating on the term loan remains unchanged, indicating our expectation for negligible (0%-10%) recovery in the event of a payment default.
"The upgrade reflects the improvement in Pike's operating performance and credit metrics in fiscal-year 2016 (ended June 2016)," said S&P Global credit analyst Robyn Shapiro. The company successfully increased its revenue and improved its EBITDA margins by reducing its costs and restructuring the operations of some of its business segments. These moves led to an improvement in the company's credit measures--with its adjusted debt-to-EBITDA metric declining below 4x--which we expect will continue in fiscal-year 2017.
The stable outlook on Pike reflects our expectation that its debt leverage will remain steady--below 4x over the next 12 months--while it maintains a FOCF-to-debt ratio of more than 5% based on the increased revenue from its existing and new customers and its steady EBITDA margin performance. Our outlook also reflects the aggressive financial policies of the company's financial sponsor.
We could lower our ratings on Pike during the next 12 months if the company's FOCF generation will likely deteriorate below 5% and remain there on a sustained basis. Although we do not currently anticipate this, such a situation could arise from a meaningful deterioration in its EBITDA margins caused by uncompetitive pricing or the loss of a key contractual relationship.
We consider an upgrade unlikely during the next 12 months because, although its credit measures have improved, we believe the company's financial risk profile will remain highly leveraged over the medium-term given our view of the aggressive financial policies of its financial sponsor.