Lyngen Midco (EVRY) #B+# Rating Affirmed With Positive Outlook On Successful Ratings Withdrawn At Issuer#s Request

Stocks and Financial Services Press Releases Thursday July 13, 2017 17:39
STOCKHOLM--13 Jul--S&P Global Ratings

STOCKHOLM (S&P Global Ratings) July 13, 2017--S&P Global Ratings today affirmed its 'B+' long-term corporate credit rating on Norway-based information technology (IT) company Lyngen Midco AS (EVRY) and its subsidiary, Lyngen Bidco AS. We subsequently withdrew the rating at EVRY's request. At the time of withdrawal the outlook was positive.

At the same time, we withdrew our 'B+' issue ratings on EVRY's existing debt due 2022 and on the revolving credit facility (RCF) due 2021. Both were repaid as part of the IPO and refinancing.

The affirmation reflects EVRY's reduced leverage following the IPO to about 4.3x at year-end 2017, which in our view will balance the expected negative free cash flow generation in the same year. The positive outlook at the time of the rating withdrawal reflects that we might have upgraded EVRY if revenues and profitability improved, coupled with a turnaround to positive free cash flow generation in the next 12 months.

EVRY issued a NOK4.5 billion term loan and a NOK1.5 billion RCF. The completed IPO and these new issuances enabled the company to refinance existing debt, including term loans and vendor financing of about NOK7.2 billion. As a result, we expect that the S&P Global Ratings-adjusted debt-to-EBITDA ratio will decline to about 4.3x at year-end 2017, before dropping further to about 3.5x-3.0x in 2018 if profitability improves significantly once benefits from internal restructuring and the partnership agreement with IBM are fully implemented, and assuming additional cost-reduction charges will be only minor. As a result, EVRY's S&P Global Ratings-adjusted EBITDA margin could increase to about 18% in 2018 compared with about 14%-15% in 2016-2017.

We expect that the IBM contract will reduce EVRY's cost base by outsourcing commoditized infrastructure services to IBM. The implementation costs of the IBM agreement mainly relate to the transfer of EVRY's customers from EVRY infrastructure to IBM infrastructure.

In addition to continued high restructuring costs in 2017, we expect IBM-related cash outflows of about NOK700 million in 2017, leading to pressure on the company's free operating cash flow. We therefore expect negative cash flow in 2017, before a pronounced cash-flow rebound in 2018 to comfortably above 10% of debt, further supported by lower interest costs post IPO.

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