S&P: Integro Parent Inc. 'B-' Ratings Affirmed, Outlook Revised To Positive After Acquisition Announcement

S&P Global Ratings said today it affirmed its 'B-' issuer credit rating on Integro Parent Inc. and Integro Group Holdings LP (Integro) and revised the outlook to positive from stable.

At the same time, we affirmed our 'B-' issue-level rating and '3' recovery rating on Integro's $337 million first lien term loan, which includes a proposed $72 million incremental fungible add-on to finance the transaction, and on the company's revolver, which has been amended to $80 million with a maturity extension to 2021. We also affirmed our 'CCC+' issue level rating and '5' recovery rating to Integro's $147 million second lien term loan, which includes a proposed $27 million incremental fungible add-on to finance the transaction.

On a stand-alone basis, Integro saw favorable organic growth of 3.4% through year-end 2017 following consecutive quarters of deteriorating operating performance. Its credit protection metrics, while still weak, improved through somewhat improved margins resulting from expense management initiatives and higher revenue from new business. We believe the company's organic growth momentum combined with the somewhat de-levering Tysers' acquisition provides the company additional opportunity to achieve growth, profitability, and credit protection measure gains.

The positive outlook reflects our expectation that Integro's key credit metrics will likely show material improvement in 2018 from the deleveraging Tysers transaction, as well continued organic growth and profitability. We expect low-single-digit organic growth from new business and retention initiatives, as well as modestly improving margins (22%-26%) from efficiency gains and synergies with Tysers. We expect the company to use discretionary free cash flow for a mix of acquisitions to stimulate growth, leading to adjusted leverage near 7.0x and adjusted EBITDA interest coverage of about 2.0x in 2018, with further improvements thereafter.

We could raise the rating in the next 12 months if Integro successfully de-levers below 7.0x-7.5x with coverage of at least 2x through demonstrated positive organic growth, strengthening margins, and successful integration of Tysers.

We could revise the outlook to stable in the next 12 months if Integro is unable to execute successfully on its recent acquisition of Tysers and its expense management initiatives and if it can't achieve organic growth with improving margins, resulting in our belief that leverage will be sustained above 7.5x and coverage below 2x. We could lower our ratings in the next 12 months if the capital structure becomes unsustainable through credit measure erosion including debt to EBITDA nearing 10x or interest coverage falling below 1.5x; or if liquidity becomes constrained so that sources fail to cover at least 1.2x of needs.
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