S&P lifts HS Group to stable

S&P said it revised the outlook on HS Group Holdings Inc. to stable from negative and affirmed the company’s B corporate credit rating.

The agency also said it reviewed the recovery and issue-level ratings for the company that were under criteria observation after the recent publishing of revised recovery ratings criteria.

With the criteria review complete, S&P said it is removing the under observation designation from these ratings and upgraded the rating and recovery rating on the company's $350 million first-lien term loan due in 2021 and $35 million revolving credit facility due in 2020 to B+ and 2 from B and 3, respectively.

The 2 recovery rating indicates 70% to 90% expected default recovery.

The company will raise $50 million in incremental first-lien debt for paying down revolver borrowings, general corporate purposes and potential tuck-in acquisitions, S&P said.

The agency also said it affirmed the CCC+ rating with a recovery rating of 6 on the company's $130 million second-lien term loan due in 2022. The 6 recovery rating indicates 0 to 10% expected default recovery.

The outlook revision reflects the forecast for continued EBITDA growth primarily from acquisitions through 2017, S&P said.

In conjunction with full repayment of the revolver, the agency said it believes it will result in adjusted leverage improving to less than 6x in 2017 from just under 7x at the end of 2016, the agency said.

Growth through acquisitions and new license sales in 2016 has more than offset steep declines in server change fees that the company is de-emphasizing to improve customer satisfaction, S&P explained.

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