Prowler Acquisition Corp. Outlook Revised To Negative Due To Unfavorable Business And Market Conditions

Stocks and Financial Services Press Releases Friday January 20, 2017 09:15
TORONTO--20 Jan--S&P Global Ratings

TORONTO (S&P Global Ratings) Jan. 19, 2017--S&P Global Ratings today said it revised its outlook on Houston-based specialty product distributor Prowler Acquisition Corp. to negative from stable. At the same time, S&P Global Ratings affirmed its 'CCC+' long-term corporate credit rating on the company.

S&P Global Ratings also lowered its issue-level rating on Prowler's senior secured first-lien term loan and revolving credit facility one notch to 'CCC+' from 'B-'. S&P Global Ratings revised its recovery rating on the debt to '3' from '2'. A '3' recovery rating, indicates an expectations for meaningful (50%-70%; higher end of the scale) recovery in the event of default.

We affirmed our 'CCC-' senior secured issue-level rating on Prowler's second-lien term loan. The '6' recovery rating on the notes is unchanged, indicating our expectations for negligible (0%-10%) recovery in the event of a default.

"The negative outlook reflects our view that the company could consider a distressed exchange offer over the next two years," said S&P Global Ratings credit analyst Valiant Ip. This is based on our view that the company's financial performance is unsustainable without any favorable business and market conditions, given that its debt will be maturing in the next two to three years. The affirmation on the corporate credit rating reflects from our view that, although the company's financial landscape and the associated credit metrics have deteriorated considerably since 2015, we believe Prowler will continue to have adequate liquidity to cover its operating and capital expenditures and make its principal and interests payments over the next 12 months without violating any financial covenant under the revolving credit facility.

The downgrade on Prowler's senior secured first-lien term loan and the revolving credit facility one notch is based on our assessment that the recovery expectations for the debt would be at the higher end of the 50%-70% range. (Previously, we had assessed recovery in the 70%-90% range and notched up the senior debt one notch as a result.)

Due to low oil prices and unfavorable market conditions and delays to some projects in the midstream sector, our adjusted-EBITDA for Prowler at fiscal year-end 2016 is estimated at about $27 million, a decrease of more than 28% from fiscal year-end 2015. In our view, Prowler relies heavily on new build projects in the midstream sector to drive revenue growth, as they represent more than 40% of total revenues. Moreover, revenues from the midstream sector represent more than 50% of the company's total revenue. As a result, any significant delays to the major projects in the midstream sector would have a material impact on the company's revenue.

The 'CCC+' rating reflects our view of Prowler as vulnerable and dependent on favorable business, financial, and economic conditions to meet its financial obligations. Therefore, the business risk and financial risk profiles are no longer the determining factors in assessing the credit risk on the company.

Our key concern at the current corporate credit rating level is the company's ability to meet its financial obligations without violating any of the financial covenants over the next 12 months.

The negative outlook reflects our view that there is a possibility that the company could consider a distressed exchange offer over the next 24 months without any favorable market and financial conditions, given that its debt will be maturing in the next two to three years.

We could lower the rating if there is further deterioration in Prowler's financial performance or a substantial draw on remaining liquidity sources, resulting in a heightened risk of default in the next 12 months. In this situation we expect that the company is likely to consider a distressed exchange offer.

We could revise the outlook back to stable if market conditions improve, resulting in stronger demand for new build projects in the midstream sector and increased demand in the downstream segment leading to a material improvement in our adjusted EBITDA to $33 million-$35 million range.


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