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Global Credit Research - 02 Sep 2010
Approximately $1 billion of outstanding rated debt affected
New York, September 02, 2010 -- Moody's Investors Service ("Moody's) affirmed the ratings
of IPC Systems, Inc. ("IPC"), including
its B3 corporate family rating, its Caa1 probability of default
rating, as well as the B1 ratings on its first-lien senior
secured credit facilities and Caa2 rating on its second-lien secured
credit facility. IPC's ratings outlook remains negative.
The continuation of the negative ratings outlook reflects Moody's
concerns about IPC's high debt leverage (8.0x for LTM June
2010, Moody's adjusted) and the ratings agency's opinion
that despite expectations of modest year-over-year improvement
in EBITDA, a meaningful improvement in financial leverage is unlikely
over the next 12 to 18 months amid a weak economic recovery in the U.S.
and Europe, and somewhat uncertain impact of regulatory reforms
on the trading business in the financial services industry, which
the company primarily serves. While Moody's believes that
order bookings and backlog trends have improved in 2010, the full
impact of new sales will likely be felt in fiscal 2012, partly as
the new projects scale and ramp-up, and due to the deferred
recognition of revenues under some contracts for larger trading system
installations. Consequently, Moody's expects leverage
to improve only to about 6.5x to 7.0x by next fiscal year-end
and a more meaningful deleveraging will likely be delayed beyond 2011.
As a result, IPC's Caa1 probability of default rating reflects
the continued likelihood of some form of balance sheet restructuring to
alleviate its unsustainable debt levels, particularly if revenue
and cash flows do not improve significantly before its credit facilities
expire between May 2013 and May 2015.
The B3 corporate family rating reflects IPC's high financial risk
partially offset by its good liquidity comprising sizeable unrestricted
cash balances ($73 million as of June 2010), improved free
cash flow generation prospects due to a more efficient cost structure
and lower interest expense, modest availability under its revolver,
and the lack of applicable financial maintenance covenants (covenants
become applicable if borrowings under the revolving credit facility exceeds
$30 million). The company currently does not have any borrowings
under its revolver. Additionally, IPC's rating is supported
by Moody's belief that the company maintains leadership position
in the niche market of providing mission-critical, voice
trading products, systems and network services to the financial
services industry, and has historically maintained long term relationships
with its key customers.
The following ratings were affirmed:
Corporate Family Rating at B3
Probability of Default Rating at Caa1
$70 million secured revolver due 2013 at B1 (LGD2, 20%)
-- point estimate revision from (LGD2, 21%)
$660 million first lien secured credit facility due 2014 at B1
(LGD2, 20%) -- point estimate revision from (LGD2,
$315 million second lien secured credit facility due 2015 at Caa2
(LGD5, 72%) -- point estimate revision from (LGD5,
Ratings Outlook is Negative
The last rating action on IPC was on May 27, 2009 when Moody's
downgraded the company's CFR to B3 from B2.
Please see IPC's credit opinion on Moodys.com for additional
The principal methodology used in rating IPC was Moody's Communications
Equipment Rating Methodology, published in June 2008 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
IPC Systems, Inc., headquartered in Jersey City,
New Jersey, provides voice trading products, systems and network
services to the financial services industry.
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms IPC's B3 rating; maintains negative ratings outlook
250 Greenwich Street
New York, NY 10007
No Related Data.
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