TEXT-S&P Lowers Allen Systems Group CCR To 'D'

Mon Nov 19, 2012 7:13pm EST

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Overview

-- U.S. systems management and cloud computing software provider Allen Systems Group Inc. has missed an interest payment on its senior secured second-lien notes, which was due on Nov. 15, 2012.

-- We are therefore lowering our corporate credit rating on the company to 'D' from 'CCC-' and lowering the issue-level ratings on the company's debt.

Rating Action

On Nov. 19., 2012, Standard & Poor's Ratings Services lowered its corporate credit ratings on Allen Systems Group Inc. to 'D' from 'CCC-'. We also lowered our issue-level rating on its first-lien senior secured loan to 'CC' from 'CCC+'. The recovery rating on its first-lien senior secured loan remains at '1', indicating our expectation for a very high (90% to 100%) recovery in the event of payment default. In addition, we lowered our issue-level rating on the senior secured second-lien notes to 'D' from 'CC'. The recovery rating on these notes is unchanged at '5', reflecting our expectation for modest recovery (10% to 30%) in the event of a payment default.

Rationale

The rating action follows the missed interest payment on the company's 10.5% senior secured second-lien notes due 2016, which was due on Nov. 15, 2012. A payment default has not occurred relative to the legal provisions of the notes, which allow for a 30-day grace period.

Under our criteria, however, we consider the extension of a due payment of interest or principal as tantamount to a default if the payment falls later than five business days (which was Nov. 15, 2012, for Allen Systems) after the scheduled due date.

Although the company has entered into a commitment letter with TPG Opportunity Partners that contemplates the full refinancing of the existing first-lien facility, as well as the payment of the missed second-lien interest at or before consummation of the financing, we don't believe that the second-lien interest payment will occur within five business days after the scheduled due date, due to the uncertain timing of closing of the financing.

In addition, the company hasn't been in compliance with its total leverage, fixed-charge coverage, and minimum liquidity covenants since June 30, 2012. During October 2012, the company entered into a forbearance agreement with the required lenders under the credit agreement. However, the forbearance agreement expired on Nov. 7, 2012.

Related Criteria And Research

-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012

-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008

-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008

Ratings List

Downgraded; Recovery Rating Unchanged

To From

Allen Systems Group Inc.

Corporate Credit Rating D/-- CCC-/Watch Dev/--

Senior Secured

US$25 mil revolving bank ln due CC CCC+/Watch Dev

2015

Recovery Rating 1 1

US$195 mil. term bank ln due CC CCC+/Watch Dev

2015

Recovery Rating 1 1

US$300 mil. 10.50% sr secd 2nd lien D CC/Watch Dev

nts due 2016

Recovery Rating 5 5

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