S&P: Horizon Global view to negative, ups loan

S&P said it revised the outlook for Horizon Global Corp. to negative from developing and upgraded the company’s first-lien term loan B to B- from CCC on the amount being reduced to $25 million from $190 million. The term loan B now has a 1 recovery rating, reflecting S&P’s expectation of 90%-100% (rounded estimate: 95%) in the event of a default.

“The outlook revision to negative reflects S&P Global Ratings’ view that despite recent debt reduction and temporary improvement in liquidity, Horizon’s credit metrics and liquidity remain quite weak and could worsen as we expect the company to generate negative free flow. The company’s results were worse in the third quarter for the businesses that remain following the sale of the profitable Asia-Pacific division. The deteriorating performance in the company’s Americas segment is quite pronounced and we are more skeptical that a quick turnaround will occur,” said S&P in a press release.

In addition, S&P lowered the rating Horizon’s $125 million of convertible notes to CC from CCC- with a 6 recovery rating reflecting the agency’s expectations of 0%-10% recovery (rounded estimate: 0%). S&P also affirmed Horizon’s CCC rating.

Fitch cuts Praesidiad debt, view to negative

Fitch Ratings said it downgraded Praesidiad Group Ltd.’s senior secured debt rating to B-/RR4 from B/RR3 and changed the outlook to negative from stable. Fitch affirmed the issuer default rating at B-.

“The revision of the outlook reflects recent weak profitability leading to increasing leverage so that financial risk is more commensurate with a CCC category rating. Liquidity has been badly affected but we expect it to remain sufficient and to improve in time for refinancing of the bullet maturity in 2024,” said Fitch in a press release.

Praesidiad’s B- rating is based on reasonable market positions albeit in narrowly defined niches and a wide range of end-markets. Praesidiad is constrained by its size and its exposure to volatile projects with low demand visibility, despite ongoing efforts to lower the cost base and improve internal efficiencies, Fitch said.

“Revenues have been affected by Praesidiad’s high exposure to the U.S. Army, armed conflicts and other unpredictable events and some of the projects in its pipeline have been delayed,” Fitch said.

Moody’s trims WFS, view to negative

Moody’s Investors Service said it downgraded Promontoria Holding 264 BV’s, or WFS, corporate family rating to B3 from B2. Concurrently Moody’s downgraded WFS’ probability of default rating to B3-PD from B2-PD and the €660 million senior secured notes maturing 2023 to B3 from B2. The outlook on all ratings was changed to negative from stable.

The rating action comes after the release of the company’s results for the third quarter of 2019 and the company’s revised expectation for its year-end results for 2019, which were weaker than what Moody’s anticipated.

“The downgrade to B3 reflects WFS’ weakening operating performance and limited cash flow generation in the first nine months of 2019, but more importantly the expectation of a limited improvement in 2020. This is largely driven by the current market environment and the challenges faced in its ground handling segment with the discontinuation of the company’s operations at Orly airport. As a consequence, WFS’ financial metrics are expected to remain below the requirements for maintaining a B2 rating category, with limited prospect of a recovery over the next 12-18 months,” the agency said in a press release.

The negative outlook reflects the uncertainties related to WFS’ ability to generate positive free-cash flow generation in the next 12-18 months which limits the company’s liquidity profile. While Moody’s sees some improvement from the cost saving initiatives WFS has been implementing, the timing of any visible improvement of its underlying earnings remain uncertain, the agency said.

S&P trims Outerstuff

S&P said it trimmed Outerstuff LLC to CCC from CCC+, citing third quarter results “significantly” below the agency’s estimates.

“Outerstuff’s weak operating performance continued through the third quarter, and we now believe a default could occur over the next 12 months. Through the first three quarters of 2019, Outerstuff’s revenue fell about 11% from the same period last year, and its last-12-months EBITDA was negative mainly because of continued weak sales of National Football League (NFL) products and the slow ramp up of the Fanatics deal signed in late 2018,” said S&P in a press release.

The company was also hurt by management’s decision to take back inventory from certain retailers in the first quarter and weak Umbro sales after a good year for Umbro in 2018, S&P said.

The outlook is negative.

S&P cuts Peabody Energy

S&P said it downgraded Peabody Energy Corp. to B+ from BB- and lowered its senior secured debt to BB- from BB.

Citing weak international and domestic coal markets, the agency said it sees cash flow decreasing and leverage increasing for Peabody. “We expect leverage will increase to 3x-3.5x in 2020 and remain above 3x in 2021 as realizations and volumes decline,” said S&P in a press release.

“We assume Peabody will decrease production in all U.S. mining complexes in response to ongoing declining demand, recent mine idlings and expected coal plant retirements. This would drop domestic volumes sold approximately 6% in 2020 after a nearly 11% drop in 2019. Although high contracted volumes for 2020 (about 75%) provide some earnings stability, we expect price realizations to continue to decline 9%-10% in 2020 following another 5% decline in 2019 as higher priced contracts roll off,” the agency said.

The outlook is stable.

S&P trims Pronovias

S&P said it downgraded Pronovias to B- from B on weaker results.

“Pronovias’ core metrics in 2019 are expected to deteriorate below our expectations for the B rating. Year-to-date October 2019 results at Pronovias Group were weaker compared with our previous assumptions, which led us to revise our forecasts for the full year. We now anticipate Pronovias will post higher-than-expected leverage with pro forma S&P Global Ratings-adjusted debt to EBITDA at about 10x (including the full impact of the Ladybird acquisition completed in July 2019) compared with our previous expectation in the range of 7x-7.5x. At the same time, S&P Global Ratings-adjusted EBITDA interest coverage is projected to be slightly below 2x and FOCF to be negative,” said S&P in a press release.

Behind the sluggish performance is Pronovias’ weaker-than-expected cruise collection, launched in January 2019 in the bridal segment, which represents the group’s core business. It led to lower revenue, mainly from the wholesale channel being hit by a lower level of re-orders over 2019. S&P said it estimates this will contribute to a 10%-15% organic sales decline in 2019.

The outlook is stable.

S&P ups Entercom second-lien notes to B

S&P said it raised its issue-level rating on the 6½% senior secured second-lien notes due 2027 sold by Entercom Communications Corp.’s subsidiary Entercom Media Corp. to B from B- and revised the recovery rating to 5 from 6. The 5 recovery rating reflects S&P’s expectation for modest (10%-30%; rounded estimate: 15%) recovery for lenders in the event of a payment default.

Entercom plans to offer a $100 million add-on to its $325 million of second-lien notes. The company intends to use the proceeds to repay a portion of its first-lien term loan B with $867 million outstanding. While the company’s total amount of debt will remain unchanged, the reduced amount of first-lien debt in its capital structure increases the value available to the second-lien lenders, S&P said.

Entercom’s B+ rating and stable outlook are unchanged, because the proposed transaction won’t affect the company’s net leverage, S&P said.

S&P ups Mallinckrodt

S&P said it raised its long-term issuer rating on Mallinckrodt plc to CCC from SD on the agency’s view of heightened risk of a distressed exchange over the next year, before any large settlement of opioid claims.

Mallinckrodt completed a distressed exchange that swapped $706 million of various unsecured notes for $323 million of new, unrated 10% second-lien notes due 2025, reducing overall debt principal by about $383 million, S&P said.

“The transaction only reduces Mallinckrodt’s 2020 maturity by about $83 million or 12%, so we believe there is still elevated risk for another distressed exchange or a liquidity event in 2020 because the company has over $600 million of debt maturing in April and uncertain cash requirements from ongoing litigation,” S&P said in a press release.

The company does have positive free cash flow, but the threat of a large opioid settlement may limit the company’s access to capital markets to refinance debt maturities, the agency said.

The outlook is negative.

S&P changes Nesco view to negative

S&P said it revised the outlook for Nesco Holdings Inc. and subsidiary Capitol Investment Merger Sub 2 LLC to negative from stable and affirmed all its ratings, including its B issuer credit rating.

“Our outlook revision reflects the risk that the company may not sufficiently improve EBITDA or generate free cash flow to reduce its significant revolver borrowings such that leverage is reduced below 5.5x. The negative outlook on Nesco reflects the risk of a potential slowdown in key end markets or higher-than-expected capital investment, either of which could prevent the company from reducing leverage below 5.5x or generating positive free cash flow over the next 12 months,” S&P said in a press release.

S&P shifts Texas Capital view to positive

S&P said it revised the outlook for Texas Capital Bancshares Inc. to positive from stable on plans to merge in an all-stock transaction with the unrated Independent Bank Group Inc.

“Our outlook revision on TCBI primarily reflects our view that the various benefits of the planned merger could outweigh any operational and integration risks that accompany such a transformative merger over the next two years. Specifically, we expect the merger to broaden TCBI’s loan and deposit diversification, extend product offerings beyond traditional commercial lending, and improve its revenue mix, though to a more limited extent. The merger should also improve TCBI’s scale and competitive market position within Texas and very modestly improve geographic diversification, notably in Colorado,” said S&P in a press release.

After the merger, the combined holding company will be named Independent Bank Group Inc. and the operating name of the combined bank will be Texas Capital Bank in Texas and nationally while remaining Independent Financial in Colorado.

S&P also revised the outlook for Texas Capital Bank NA to positive and affirmed its BBB- rating. The agency affirmed Texas Capital Bancshares’ BB+ rating as well.

S&P rates Calpine notes BB

S&P said it assigned its BB issue-level rating and 1 recovery rating to Calpine Corp.’s proposed $750 million senior secured notes due 2028. The 1 recovery rating reflects S&P’s expectation for very high (90%-100%; rounded estimate: 95%) recovery in the event of a default.

The company intends to use the proceeds to refinance its $750 million 6% secured notes due 2022. Calpine also plans to reprice $950 million of its term loan B9 due 2026. “We estimate that the company will have about $10.8 billion of debt on its balance sheet as of Dec. 31, 2019,” said S&P in a press release.

S&P rates Calpine B+. “If the company continues to execute on its plan, which includes maintaining debt to EBITDA in the 4x-5x range, we could raise our rating,” the agency said.

S&P rates GFL notes B+, CCC+

S&P said it assigned a B+ rating with a 2 recovery rating to GFL Environmental Inc.’s planned offering of $500 million secured notes due 2026, and its CCC+ issue-level and 6 recovery ratings to GFL's $275 million add-on to the existing unsecured notes due 2026.

The company plans to use $775 million of debt and C$300 million of equity to fund acquisitions and repay borrowings under its revolver.

“We expect EBITDA from the prospective acquisitions to largely offset higher debt levels from the proposed transaction. We expect the proposed debt issuance will result in higher than previously expected adjusted debt-to-EBITDA immediately after closing, but this should improve over the next 12 months as net proceeds are used to complete acquisitions. In our view, EBITDA from pending and prospective acquisitions should offset higher debt levels, resulting in core credit measures by the end of 2020 that are largely unchanged from our previous review,” said S&P in a press release.

The outlook is stable, and the agency affirmed GFL’s B rating.

S&P nips Isagenix

S&P said it trimmed Isagenix Worldwide Inc.’s rating to CCC+ from B- and lowered the rating on the company’s $415 million senior secured bank facility, which consist of a $40 million revolving credit facility and $375 million term loan facility, to B- from B.

“The downgrade reflects Isagenix’s continued underperformance in recent quarters and deterioration in credit metrics and our belief that the company is dependent on favorable business, financial, and economic conditions to meet it financial commitment. Isagenix continues to face intense competition for sales representatives from the gig economy and competition from Amazon and has been unable to stabilize its operating performance,” said S&P in a press release.

Isagenix’s adjusted EBITDA fell more than 40% since 2017. The company’s leverage for the 12 months ended Sept. 30, increased to the high-5x area. “We expect adjusted EBITDA to shrink to about $70 million by the end of 2019, which was a little more than half of the size of the adjusted EBITDA in 2017. Although we expect the company to generate positive free cash flow of about $40 million for 2019, it is significantly less than $114 million FCF in 2017,” said S&P.

The outlook is negative.

S&P changes J.M. Smucker view to negative

S&P said it revised J.M. Smucker Co.’s outlook to negative from stable on continued underperformance in the pet foods segment and the risk of a lower rating within the next 24 months if the agency revises its assessment of the company’s business risk profile.

The company revised its full-year guidance downward for the fiscal year ending April 30, 2020.

“The negative outlook reflects the company’s underperformance relative to our expectations and the risk that the company will be unable to stabilize the business and return it to growth, especially in the pet food segment,” said S&P in a press release.

S&P affirmed the company’s BBB rating.

Moody’s shifts Texas Capital view to negative

Moody's Investors Service said it changed the outlook for Texas Capital Bancshares, Inc. and its bank subsidiary, Texas Capital Bank, NA to negative from stable and affirmed the Baa3 long-term issuer rating.

The affirmation and change in outlook follow the announcement of the planned merger of Texas Capital and the unrated Independent Bank Group, Inc.. The companies expect the all-stock transaction to close in mid-2020, subject to regulatory approvals.

“Though the merger will result in a more diversified loan and deposit franchise and provide opportunity for cost savings that could enhance profitability, it also presents material integration risks, which was the driver of the outlook change to negative from stable. Any operational missteps that would surface in the integration process could weaken the financial standing and performance of the combined entity, which may in turn incentivize management to increase the firm's risk appetite to preserve profitability or capital,” Moody’s said in a press release.

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