S&P cuts Casa, adds watch

S&P said it lowered its ratings on Casa Systems Inc. and its first-lien term loan to CCC+ from B- and placed the issuer rating on CreditWatch with negative implications. The loan’s 3 recovery rating is unchanged.

“The downgrade reflects Casa's continued underperformance and our view that its capital structure is not sustainable without a significant improvement in profitability. Casa’s revenue declined roughly 38% over the first six months of fiscal 2022 primarily due to supply constraints. In addition, decreased operating leverage from lower revenue, inflationary pressures on its input costs arising from supply chain disruptions, and increased spending around research and development activities led to negative EBITDA and only modest levels of positive free cash flow,” the agency said in a press release.

The CreditWatch reflects the potential refinancing risk for the company’s term loan, which matures in less than 15 months. “Since cash balances are currently insufficient to cover the maturity and we see limited prospects for free cash flow generation, we assume Casa will be required to refinance this obligation to avoid a default,” S&P said.

S&P warned the CreditWatch indicates an at least 50% chance of another downgrade on Casa over the next 90 days if it fails to successfully refinance its upcoming maturity before going current on Dec. 14.

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