S&P cuts CSC ServiceWorks

S&P said it lowered its ratings for CSC ServiceWorks (Spin HoldCo Inc.) and its revolver and first-lien term loan to CCC+ from B-.

“Spin generated a larger-than-expected free cash flow deficit over the first six months of fiscal 2024. Spin's revenue modestly decreased 1% (excluding the divestiture of the European operations) for the six months ended in September 2023 compared to the prior-year period.

“Additionally, S&P Global Ratings-adjusted EBITDA margins improved 157 basis points to nearly 29.7%, driven by cost-reduction efforts and lower commission expenses. Still, due to rising interest rates, interest expense on its floating rate debt increased approximately 53% for the six months ended Sept. 30, 2023, compared with the prior-year period,” the agency said in a press release.

On the plus side, “Spin has sufficient liquidity to absorb potential cash flow deficits and execute the amenities strategy for a few quarters. As of Sept. 30, Spin had $146.8 million cash on the balance sheet, most of which consists of a portion of proceeds it retained from the sale of its European operations after paying a $67.7 million dividend to shareholders. The company also had approximately $107 million available on its revolving credit facility due in 2026. However, the springing covenant would likely preclude access to the remaining availability,” S&P said.

The outlook is negative.

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