S&P gives System1, loan B

S&P said it gave B ratings to System1 Inc. (formerly Trebia Acquisition Corp.), its financing subsidiary Orchid Merger Sub II LLC and its $400 million senior secured term loan. The loan’s recovery rating is 3.

“Our B rating reflects System1's participation in a highly competitive and fragmented industry with low barriers to entry, significant customer concentration, relatively small scale of operations, and lower EBITDA margins than peers such as Red Ventures Holdco LP and Dotdash Meredith Inc. In addition, we believe that the company's pay-for-performance business model creates uncertainty in predicting future operating performance. The company's favorable industry tailwinds and solid cash-flow generation somewhat temper these weaknesses,” S&P said in a press release.

The loan, cash from Trebia and sponsor equity were used to finance its business combination with Protected.net., repay System1’s debt and fund $510 million in Trebia shareholder redemptions.

The outlook is stable. The agency said it forecasts S&P Global Ratings-adjusted leverage of about 6x and free operating cash flow to debt of 10%-12% in 2022.

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