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Global Credit Research - 23 Mar 2011
Approximately $950 million of rated debt securities affected
New York, March 23, 2011 -- Moody's Investors Service has assigned a B2 rating to NCO Group,
Inc.'s proposed amended and extended revolving credit facility.
Concurrently, Moody's affirmed all other ratings of NCO.
Moody's will withdraw the rating on its existing credit facility
following the completion of the amendment.
NCO is proposing extending its senior secured revolving credit facility
expiring November 2011 to December 2012 and also reducing the size to
about $75 million from $100 million. In addition,
both leverage and interest coverage covenants are proposed to be reset
commencing March 31, 2011 from (5.65x to 6.75x) and
(1.85x to 1.60x), respectively.
Moody's rating actions are summarized below.
NCO Group, Inc.:
$75 million senior secured revolver expiring 2012, B2 (LGD
Rating to be withdrawn at closing:
$100 million senior secured revolver expiring 2011, B2 (LGD
Ratings affirmed/LGD assessments revised:
Corporate Family Rating, Caa1
Probability of Default Rating, Caa1
$549 million senior secured term loan due 2013, B2 (LGD 2,
26%) from (LGD 2, 27%)
$165 million senior floating rate notes due 2013, Caa2 (LGD
5, 73%) from (LGD 5, 74%)
$200 million senior subordinated notes due 2014, Caa3 (LGD
6, 91%) from (LGD 6, 92%)
Speculative Grade Liquidity rating, SGL-4
The Caa1 CFR reflects limited business line diversity and Moody's
anticipation of declining revenues and profitability in NCO's ARM and
CRM business lines during 2011. Moody's expects liquidation rates
of delinquent accounts receivables to remain depressed as many consumers
struggle with high unemployment and constrained access to credit.
Moody's also expects profitability in the CRM segment to be negatively
affected by declining transaction volumes from certain large customers
in the telecommunications sector. The ratings are supported by
Moody's expectation that NCO will use free cash flow to pay down debt
over the next year.
The negative outlook reflects Moody's concern that operating performance
and liquidity will remain under pressure during 2011.
The ratings could be downgraded if profitability continues to decline
more than expected in 2011, liquidity materially erodes or free
cash flow generation turns negative.
The rating could be upgraded if the company demonstrates growing revenues
and improved profitability, while also achieving interest coverage
(EBITDA less capital expenditures to interest expense) of greater than
1.7 times and free cash flow to debt of about 5%.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history
The principal methodologies used in this rating were Global Business and
Consumer Services Industry published in October 2010, and Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009.
Based in Horsham, Pennsylvania, NCO Group, Inc.
(NCO) is a global provider of business process outsourcing services,
primarily focused on accounts receivable management (ARM) and customer
relationship management (CRM). NCO, a portfolio company of
One Equity Partners (OEP). The company reported revenue of about
$1.6 billion for the twelve months ended Sept. 30,
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 NCO's amended revolver B2; affirms Caa1 CFR
250 Greenwich Street
New York, NY 10007
No Related Data.
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