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Global Credit Research - 07 Apr 2011
Approximately $625 million of rated debt securities affected
New York, April 07, 2011 -- Moody's Investors Service assigned a B1 rating to CorpSource Finance
Holdings, LLC's ("CorpSource") $425 million
first lien senior secured credit facilities and Caa2 rating to $200
million second lien senior secured term loan. Concurrently,
CorpSource's Corporate Family and Probability of Default Ratings
was upgraded to B3 from Caa1. The rating outlook was changed to
stable from negative.
The upgrade reflects CorpSource's stronger credit profile following
the refinancing of the company's capital structure which alleviates
near-term maturities and tightening covenants in 2011. In
addition, the all stock transaction with HOV Services, LLC's
("HOVS") lowers the company's pro forma debt to EBITDA
ratio to the mid 5.5 times range for fiscal year-end 2010,
provides the company with greater client diversification and access to
a proven IT platform.
HOVS' primary service areas are processing healthcare claims for
healthcare payers, analyzing and processing large volumes of accounts
receivable transactions, offering a technology platform to process
background screening, employee record keeping and human resource
services. As of December, 31, 2010, HOVS had
revenue and EBITDA of $158.8 million and $30.8
Following is a summary of Moody's rating actions.
CorpSource Finance Holdings, LLC:
$75 million revolving credit facility at B1 (LGD3, 32%);
$350 million 1st lien term loan facility at B1 (LGD3, 32%);
$200 million 2nd lien term loan facility at Caa2 (LGD5, 85%);
Corporate Family Rating to B3 from Caa1
Probability of Default Rating to B3 from Caa1
Ratings to be withdrawn:
$183 Million PIK Loan due March 2012 at Caa3 (LGD5, 86%);
$75 million revolving credit facility at B1 (LGD2, 16%);
$70 million 1st lien term loan at B1 (LGD2, 16%);
$200 million 2nd lien term loan at Caa1 (LGD4, 54%);
The B3 CFR reflects CorpSource's relatively small combined revenue
size of under $500 million, expected leverage improvement
post-acquisition that is adequate for the rating category,
a history of declining revenue and profitability, and the risks
associated with merging a relatively large company into its operations.
Sales of SourceCorp (operating subsidiary) declined steadily in fiscal
2010 due to lower volumes and delays in closing new businesses as a result
of client disruption associated with the transfer of accounts to a new
The ratings are supported by the combined company's increased scale
and revenue opportunities, improved segment and geographic diversification,
a large recurring revenue stream in the BPS segment and high barriers
to entry from competitors. Sales are expected to benefit from cross-selling
of offerings between the two entities ,while operating leverage
from cost savings should help improve margins in 2011.
The stable outlook reflects our expectations of modest organic growth
in revenues over the next twelve months with improving profitability largely
driven by cost synergies from the combination of the two companies.
The outlook incorporates our view that the integration progresses without
The ratings could be downgraded if the process of integration of the two
companies materially weakened financial strength metrics such that debt
to EBITDA increased above 7 times and free cash flow to debt was negative.
A better than expected recovery in top line performance in combination
with debt to EBITDA expected to be sustained below 5.0 times could
warrant an upgrade.
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
CorpSource is a provider of business process outsourcing solutions to
document and information intensive industries including healthcare,
financial services, legal, government and other sectors.
The company's largest segment, the Business Process Solutions
(BPS) segment, provides outsourcing solutions that help customers
manage document and information processes. Post transaction,
CorpSource will be 50% owned by Apollo Management V, L.P.
and the former shareholders of HOVS, Hands on Ventures, LLC.,
own the remaining 50%. Pro forma for the twelve months ended
December 31, 2010, the company reported revenues of approximately
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.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates CorpSource's new credit facilities B1; CFR upgraded to B3
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