S&P rates Global Imaging convertible B, loan BB-

Standard & Poor's assigned a B rating to Global Imaging Systems Inc.'s $50 million subordinated convertible notes due 2008 and a BB- rating to the proposed $100 million secured five-year revolving credit facility and $150 million secured six-year term loan facility.

S&P said the ratings reflect a leveraged capital structure and second-tier industry position, partially offset by consistent performance in the office equipment distribution market, significant recurring revenue and a diverse customer base.

The company is expected to maintain operating margins in the mid-teens as a percent of sales, S&P said.

EBITDA interest coverage increased to more than 5x in the March quarter from 3.4x in the December quarter. Total debt to EBITDA improved to more than 2.5x from 3.5x over the same period.

Global Imaging maintains minimal cash balances. The proposed $100 million secured revolving credit facility will replace the existing $150 million secured revolving credit facility due June 30, 2004.

The outlook is stable, supported by consistent operating performance and solid credit ratios. Modest levels of free operating cash flow and the current business profile will limit ratings improvement, S&P said.

In a default, S&P said bank lenders could recover less than 50% of principal, as the value of the collateral could be substantially less than the outstanding principal amount.

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