Moody's downgrades Alorica

Moody's Investors Service said it downgraded Alorica Inc.'s corporate family rating to B3 from B1, probability of default rating to B3-PD from B1-PD and senior secured first-lien credit facility ratings to B3 from B1.

The outlook is stable.

The downgrades reflect a view that Alorica's credit profile will continue to erode through 2019 as rising labor costs in North America and volume softness within certain verticals will pressure revenue and the operating margin, Moody's said.

Execution risk will be high over the next year as the company repositions its North American footprint and exits non-profitable contracts, the agency said.

Moody's projects declining cash flows and earnings in 2019, largely attributable to anticipated transformation and restructuring costs, as well as higher capital spending levels, Moody's said.

While the company was slow to react to rising labor costs in North America, the agency said it believes that right-sizing its U.S. capacity, coupled with planned cost reduction initiatives and infrastructure investments, will improve its competitive position in the global business process outsourcing market, the agency said.

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