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Global Credit Research - 22 Oct 2010
Approximately $ 380 mm of rated outstanding debt affected
New York, October 22, 2010 -- Moody's Investors Service affirmed its ratings for CompuCom Systems,
Inc. ("CompuCom" or the "Company"),
including the B2 Corporate Family Rating (CFR), the Ba2 rating for
its senior secured credit facilities and the B3 rating for its senior
subordinated notes. The outlook for the ratings is stable.
The affirmation of the CFR and the stable outlook reflect Moody's
view that CompuCom's revenue and profitability should rebound strongly
over the next 12-to-18 months such that the Company should
be able to generate good EBITDA growth and sufficient free cash flow to
repay debt ahead of step-downs in the bank covenant levels at the
end of fiscal 2010 and 2011. The potentially tight covenant cushion
stems from CompuCom's slow deleveraging resulting from its weak
operating performance in fiscal 2009, which was affected by a rapid
decline in end-market demand, sustained pricing pressure
and the Company's elevated spending on integrating the operations
of Getronics, which it acquired in August 2008.
Moody's Analyst Raj Joshi said, "CompuCom's operating
performance should benefit from the modest economic recovery in the U.S.
and the improved outlook for enterprise information technology (IT) spending,
which should stimulate end-market demand for IT outsourcing services
and alleviate the revenue churn and pricing pressure that CompuCom experienced
through a challenging macroeconomic environment." Moody's
view is supported by the Company's reported decline in revenue churn
to pre-recession mid-single-digit percentage average
levels, and CompuCom's stronger new contract booking trends.
Moody's also expects CompuCom's free cash flow to incrementally
benefit from its high operating leverage, lower cost structure resulting
from synergies from the acquisition of Getronics as well as organic cost
efficiencies, and declining spending on the integration of Getronics'
operations. "Expectations of healthy free cash flow in 2011,
driven by improved profitability, should create moderate operating
cushion under the consolidated senior secured leverage covenant in the
credit agreement and mitigate former concerns about prospective covenant
compliance," Joshi added.
The B2 CFR reflects CompuCom's high financial risk, including
high debt-to-EBITDA leverage and merely adequate levels
of liquidity given current financial covenant constraints, and the
Company's relatively small scale compared to its much larger and
better capitalized competitors in the intensely competitive market for
IT outsourcing services and products. These key credit risks are
tempered by Moody's belief that the Company will deleverage from
about 6.0x (incorporating Moody's standard analytical adjustments
and a 50% attribution to the Company's preferred stock at
an intermediate holding company) for the LTM period ended 2Q 2010 to about
4.5x by the end of 2011 (excluding the debt attribution to the
preferred stock, LTM 2Q 2010 Moody's adjusted leverage was
4.9x), notably through both EBITDA growth and debt repayment.
The rating is further supported by the Company's highly variable
operating cost structure, its competitive service offerings and
track record of long-standing relationships with its key blue-chip
customers, and the near-term visibility provided by recurring
revenues from long-term service contracts.
The stable outlook reflects Moody's expectation that CompuCom will
continue to realize solid and improving operating performance, yielding
reduced financial risk via deleveraging of its balance sheet and will
thereby remain in compliance with its bank covenants and maintain adequate
or better levels of liquidity.
The following rating actions were taken:
Corporate Family Rating -- Affirmed B2
Probability of Default Rating -- Affirmed B2
$170 Million Senior Secured Term Loan B due 2014 --
Affirmed Ba2 (LGD2, 10%)
$285 Million Senior Subordinated Notes due 2015 --
Affirmed B3 (LGD4, 67%)
The last rating action was on July 17, 2007 when Moody's assigned
CompuCom a B2 Corporate Family Rating and rated its new senior secured
credit facilities and senior subordinated debt in connection with the
Company's leveraged buyout by Court Square Capital Partners.
The principal methodology used in rating CompuCom was the Moody's Global
Business and Consumer Services Industry rating methodology, published
in October 2010 and available on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Headquartered in Dallas, Texas, CompuCom Systems, Inc.
provides IT solutions and services. For the twelve months ended
June 30, 2010 the Company generated revenues of $1.8
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms CompuCom's B2 CFR; Outlook is stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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