S&P cuts SVP Worldwide

S&P said it lowered Stitch Acquisition Corp.’s (SVP Worldwide) issuer rating to CCC from B- and the rating on its senior secured term loan to CCC from B. The recovery rating remains 3, indicating meaningful recovery (50%-70%; rounded estimate: 50%) in the event of a payment default. Additionally, S&P placed the ratings on CreditWatch with negative implications.

SVP failed to meet the agency’s revenue and earnings for the third quarter of 2022 and is expected to deliver lower revenue and cash flow than forecasted. S&P said it estimates SVP’s leverage will come in at about 15x, which it considers unsustainable.

“We expect FOCF will remain stressed over the next few quarters due to weak earnings, partially offset by the unwinding of its working capital position. We expect rising interest rates to further pressure FOCF since most of the company's debt is floating rate and is not protected via interest rate hedges. We expect the company will draw on the $70 million asset-based loan (ABL) to meet its interest payment.

“However, we estimate availability under the ABL is limited to around $15 million as of Sept. 30, 2022, given our expectation that the company would not be in compliance with its springing minimum fixed-charge coverage covenant if it became effective. Therefore, absent a substantial recovery in early 2023, we believe the company will be required to raise external capital to shore up liquidity and avoid a cash shortfall in the near term,” the agency said in a press release.

S&P said it aims to resolve the negative watch upon receipt of information regarding the company's plans to improve liquidity.

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