Moody's assigns Caa1 to QualTek

Moody's Investors Service said it assigned a Caa1 corporate family rating and Caa1-PD probability of default rating to QualTek LLC. The agency also gave a Caa1 rating to QualTek's first-lien term loan, a Caa2 rating to the second-lien term loan and a Caa3 rating to the third-lien term loan. The outlook is stable.

“QualTek's Caa1 CFR reflects its small business scale, weak credit metrics and limited liquidity reserve. The company's financial restructuring in July 2023 almost halved its outstanding debt to $365 million, including $87.8 million of asset-backed revolver borrowings, $135 million first-lien term loan, $105 million second-lien term loan and $0.1 million third-lien term loan.

“However, QualTek's credit metrics remain weak due to its depressed earnings, high-interest rates associated with its exit financing and a lack of free cash flow generation. Moody's estimates its debt/EBITDA ratio will be close to mid-seven times at the end of 2023 based on the expectation of lucrative storm recovery activities during hurricanes and winter storms later in the year, as well as a reduction in restructuring expenses and lower cost of doing business post-emergence from chapter 11,” the agency said in a press release.

The stable outlook mirrors a forecast that QualTek will improve its business performance and maintain its credit metrics commensurate with its rating over the next 12-18 months, Moody’s explained.

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