Tweddle Holdings Inc. Ratings Downgraded To #CCC# and Withdrawn At Issuer Request

Stocks and Financial Services Press Releases Wednesday June 20, 2018 09:24
CHICAGO--20 Jun--S&P Global Ratings
CHICAGO (S&P Global Ratings) June 19, 2018--S&P Global Ratings today lowered its corporate credit rating on Michigan-based Tweddle Holdings Inc. to 'CCC' from 'CCC+'. The rating outlook is negative.

At the same time, we lowered our issue-level rating on Tweddle Group Inc.'s $225 million secured term loan to 'CCC' from 'CCC+' and our recovery rating to '4' from '3'. The '4' recovery rating indicates our expectation for average recovery (30%-50%; rounded estimate 35%) of principal in the event of a payment default. Tweddle is the ultimate parent of Tweddle Group Inc.

At the issuer's request, we are withdrawing all ratings immediately following these rating actions.

The downgrade reflects our expectation that the company will violate its senior secured credit facility's net leverage covenant in the first half of 2019 and will have insufficient cash flow to service its fixed charges by the end of 2019. That shortfall reflects steeply declining cash flow generation as a result of the major contract loss disclosed earlier this year. Because the lost client contract represented roughly 40% of Tweddle's 2017 revenue, we believe the company will be hard pressed to manage its debt service and amortization needs after 2018.

Our negative outlook reflects our expectation that Tweddle will violate its financial maintenance covenants in the first half of 2019 and probably seek to reduce its debt with a distressed exchange or in-court restructuring. We expect FOCF/debt to be in the mid-to-low single digit percentage area in 2018 and that company will have free operating cash flow deficits in 2019.

We could lower our rating if we become convinced that the company will violate its financial maintenance covenant, default on its debt payments, pursue a distressed exchange, or file for bankruptcy over the next six months. This could result from worsening revenue declines through accelerated contract loss or automotive market declines, or from poor cost management. Although unlikely, we could raise our ratings if we believe the company can significantly grow organic revenue and manage its fixed costs such that EBITDA is more than sufficient to service its fixed charges and maintain its covenant margin of compliance such that we do not anticipate a payment default or covenant violation. In this scenario the capital structure would have to become more sustainable.


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