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I AGREE
10 May 2018
Approximately $664 million of rated debt
New York, May 10, 2018 -- Moody's Investors Service ("Moody's") upgraded ratings of DynCorp
International Inc. ("DI" or the "company")
including the Corporate Family Rating to B2 from B3, first lien
bank facility to Ba2 from Ba3, second lien notes to B2 from Caa1.
The rating outlook is stable.
RATINGS RATIONALE
The upgrade reflects backlog growth coupled with improved profitability
under existing contracts that should continue over 2018-2019.
New win awards, extended task orders and scope expansion speak to
DI's effective contract execution amidst a favorable business environment,
with US defense spending and range of US mission support needs rising.
With the better operating performance the credit profile and metrics have
improved. Since 2016, debt has been reduced by about $100
million, 60% from free cash flow generation and 40%
from contibuted parent capital. EBITDA leverage has declined to
below 4x in 2017 from 7x in 2016 (Moody's adjusted basis).
The B2 CFR incorporates DI's long-established international
mission support capabilities, including logistics, vehicle/aviation
maintenance, and training. The high likelihood of 2018 revenues
of around $2 billion with EBITDA margin around 9% to 10%
now provide better income visibility than DI has enjoyed in several years.
Likelihood of leverage at mid 3x and EBIT interest coverage at,
a relatively less robust, mid 1x level, support the rating.
The stable rating outlook envisions DI generating $40 million of
free cash flow generation near term with the expectation that recently
improved account receivables/working capital management continues.
The liquidity profile is only adequate, as denoted by the speculative
grade liquidity rating of SGL-3, despite a high cash balance
and the expectation of free cash flow. The (unfunded) revolver
expires in July 2019 and by that time the remaining first lien term loan
balance, was $127 million at March 2017, will be a
current liability. Nevertheless, the liquidity profile benefits
from DI's improved income level and 14% backlog growth over
2017.
While the CFR has been upgraded one notch to B2 from B3, the second
lien note rating improved two notches to B2 from Caa1, based on
Moody's Loss Given Default model. The two notch increase follows
DI's first lien term loan prepayments that have reduced the amount
of effectively senior debt available that could compete against the second
lien claim in a stress scenario.
Upward rating momentum would depend on expectation of revenue growth,
EBIT to interest closer to 2x, free cash flow to debt approaching
15%, a good liquidity profile.
Downward rating pressure would follow backlog decline, annual free
cash flow below $20 million, weak liquidity, or re-leveraging
such as related to a recapitalization or M&A event.
DynCorp International Inc., headquartered in McLean,
VA, provides mission-critical support services outsourced
by US military, nonmilitary US governmental agencies and foreign
governments. The company is an operating subsidiary of Delta Tucker
Holdings, Inc., which is owned by affiliates of Cerberus
Capital Management, LP. Revenues for the twelve months ended
December 31, 2017 were approximately $2 billion.
The following summarizes today's rating action:
Upgrades:
..Issuer: DynCorp International Inc.
.... Probability of Default Rating,
Upgraded to B2-PD from B3-PD
.... Corporate Family Rating, Upgraded
to B2 from B3
....Senior Secured Bank Credit Facility,
Upgraded to Ba2 (LGD2) from Ba3 (LGD2)
....Senior Secured Regular Bond/Debenture,
Upgraded to B2 (LGD4) from Caa1 (LGD4)
Outlook Actions:
..Issuer: DynCorp International Inc.
....Outlook, Remains Stable
Affirmations:
..Issuer: DynCorp International Inc.
.... Speculative Grade Liquidity Rating,
Affirmed SGL-3
The principal methodology used in these ratings was Aerospace and Defense
Industry published in March 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
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For ratings issued on a program, series or category/class of debt,
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Bruce Herskovics
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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