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17 Feb 2011
Approximately $67 million of rated debt
New York, February 17, 2011 -- Moody's Investors Service today downgraded Billing Services Group North
America, Inc.'s ("BSG") Corporate Family Rating ("CFR") to
B2 from B1. Concurrently, the Probability of Default Rating
was lowered to B3 from B1 and the rating on the senior secured term loan
was lowered to B1 from Ba3. The outlook was changed to negative
The downgrade in the CFR to B2 reflects Moody's heightened concerns regarding
BSG's business trends and liquidity profile. In the second half
of 2010, revenues fell an estimated 24% and Moody's expects
further deterioration in revenue and operating results in 2011.
The steep drop in demand has been driven by public scrutiny of billing
practices for "enhanced services" (non-toll charges) on consumers'
landline telephone bills. As such, the largest local exchange
carrier ("LEC") responded by prohibiting BSG and its customers from placing
certain enhanced services charges on its customers' bills. Additionally,
the U.S. Senate Commerce Committee announced in December
2010 that it is conducting an investigation of "cramming" (unauthorized
telephone charges), further adding to the negative public perception
surrounding LEC billing for enhanced services. While the LECs and
BSG are proactively addressing customer billing practices, Moody's
believes enhanced services revenues will continue to fall and a rebound
is unlikely in the near-term. At the same time, the
telecommunications industry continues to experience a secular decline
in landline long distance and operator services volumes (estimated by
Moody's at 5-10% per year), BSG's more traditional
end market. Nonetheless, the B2 CFR is supported by relatively
low financial leverage and strong interest coverage metrics for the rating
category, reflecting steady debt reduction over the past three years.
In Moody's view, BSG's liquidity profile has weakened as a
result of earnings deterioration and covenant tightness. Due to
scheduled step downs in the maximum leverage covenant, combined
with lower projected EBITDA, Moody's considers it unlikely
that BSG will meet its leverage covenant at June 30, 2011 without
a waiver or amendment. On February 15, 2011, the company
announced it has begun negotiations with lenders to amend financial covenants.
Meanwhile, financial flexibility continues to be constrained by
high mandatory debt amortization of $11.25 million per year.
BSG does not have a revolver, and part of the company's cash balance
represents customer funds.
The negative outlook reflects Moody's expectations that revenue and earnings
will fall materially in the near-term. Uncertainty surrounding
the Congressional investigation and negative public perception of LEC
billing practices are expected to linger. The outlook could be
stabilized if enhanced services volumes rebound and BSG's liquidity profile
improves. The ratings could be downgraded if financial covenants
are not amended to provide adequate cushion over the near term,
or if revenue, earnings, or cash flow deteriorate at a faster
pace than currently expected.
Moody's downgraded the following ratings:
$67 (originally $112.5) million senior secured term
loan due 2014, to B1 (LGD2, 26%) from Ba3 (LGD3,
Corporate Family Rating, to B2 from B1
Probability of Default Rating, to B3 from B1
The principal methodologies used in this rating were Global Business &
Consumer Service Industry Rating Methodology published in October 2010,
and Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
Billing Services Group North America, Inc. provides clearing,
settlement, payment and financial risk management solutions to the
telecommunications industry, merchants and online stores.
Headquartered in San Antonio, Texas, BSG reported 2010 revenues
are likely to be slightly higher than $132 million.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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Asst Vice President - Analyst
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 lowers Billing Services Group's CFR to B2; outlook negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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