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I AGREE
11 Feb 2011
Approximately $175 million of rated debt affected
New York, February 11, 2011 -- Moody's Investors Service has upgraded SGS International,
Inc.'s (SGS) corporate family rating to B1 from B2 and the
rating on its $175 million senior subordinated notes to B2 from
B3. At the same time, Moody's raised the speculative
grade liquidity rating to SGL-2 from SGL-4. The rating
outlook is stable.
The following ratings were upgraded:
Corporate family rating to B1 from B2;
Probability of Default rating to B1 from B2; and
$175 million senior subordinated notes due 2013 to B2 (LGD5,
74%) from B3 (LGD5, 76%); and
Speculative grade liquidity rating to SGL-2 from SGL-4.
The following ratings were withdrawn following the execution of the amended
and restated credit agreement on October 25, 2010:
$35 million first lien revolving credit facility due December 2010
at Ba2 (LGD2, 21%);
$39 million acquisitions loan facility due 2011 at Ba2 (LGD2,
21%); and
$83 million term loan facility due 2011 ($83 million outstanding)
at Ba2 (LGD2, 21%).
Please refer to Moody's Investors Service's Withdrawal Policy,
which can be found on our website, www.moodys.com.
Moody's has not assigned ratings to the new amended and extended
revolving credit facility and term loans maturing in October 2013.
RATINGS RATIONALE
The upgrade of the CFR to B1 reflects SGS's meaningfully improved
financial leverage and earnings growth, coupled with the prospects
of improving macroeconomic conditions and continued free cash generation
and debt reduction in 2011. The B1 rating reflects SGS's
conservative financial policies, strong interest coverage metrics,
solid margins and a good liquidity profile. SGS's scale,
narrow product and geographic focus and limited growth expected for the
North American graphic services market are mitigating factors at the B1
rating level.
The stable outlook reflects Moody's expectation that SGS will operate
with leverage, adjusted to include operating leases, below
3.5x in 2011. Pricing pressures and increased operating
costs may weigh on margins in 2011; however, Moody's
does not anticipate these trends to materially weaken cash flows or SGS's
liquidity profile. Debt-financed shareholder friendly activities
are not contemplated in the context of the B1 rating or stable outlook.
The upgrade of the speculative grade liquidity rating to SGL-2
from SGL-4 reflects SGS's execution of the amended and extended
credit agreement in October 2010 combined with its fourth quarter debt
reduction. Terms of the new facility have extended maturities for
the first lien revolver and majority of term loans to October 2013 and
increased the revolver size to $40 million from $35 million.
Further, the SGL-2 rating reflects Moody's expectation
that free cash will be applied to a combination of bolt-on acquisitions
and debt reduction. Moody's expects SGS to maintain covenant compliance
throughout 2011.
SGS is viewed as well positioned in the rating category. The company's
relatively small size, focus on the niche end markets and ongoing
pricing pressure are viewed as a meaningful hurdle to an upgrade over
the intermediate term. Ratings pressure would likely arise if SGS
were to engage in debt financed shareholder friendly activities or acquisitions
that resulted in debt-to-EBITDA, adjusted to include
operating leases, approaching 4.5x . Further,
FCF-to-debt metrics falling below 5% due to either
incremental debt or reduced cash flows could have negative rating implications.
The last rating action on SGS was the September 20, 2010 change
in rating outlook to stable from negative.
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009
SGS, headquartered in Louisville, Kentucky, is a global
leader in the digital imaging and communication industry, offering
design-to-print graphic services to the international consumer
products packaging market. The Company offers a full spectrum of
digital solutions that streamline the capture, management,
execution and distribution of graphics information. Sales for the
twelve months ending September 30, 2010 were $349 million.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics 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
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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
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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.
New York
Brian Grieser
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades SGS International's CFR to B1; SGL raised to SGL-2; Outlook Stable
No Related Data.
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