-- U.S.-based technical and logistics services provider IAP Worldwide
Services Inc. has amended and extended its first- and second-lien credit
-- We view the transaction as tantamount to default because the offer
was, in our view, distressed and resulted in debtholders receiving less value
than the promise of the original securities.
-- We are lowering our corporate credit rating on IAP to 'SD' (selective
default) from 'CCC' and the issue-level ratings on the credit facilities to
'D', and subsequently withdrawing the issue ratings.
-- We expect to reassess our corporate credit rating on IAP over the next
few weeks and that it will likely be in the 'CCC' category but could possibly
be as high as 'B-'.
On Nov. 29, 2012, Standard & Poor's Ratings Services lowered its ratings on
Cape Canaveral, Fla.-based IAP Worldwide Services Inc. (IAP), including the
corporate credit rating to 'SD' from 'CCC'. We also lowered our first-lien
senior secured issue ratings to 'D' from 'CCC' and second-lien senior secured
issue ratings to 'D' from 'CC'. We subsequently withdrew our issue ratings.
The rating actions reflect our view that the amendment and extension of the
credit facilities are a de facto restructuring and, thus, are tantamount to a
default according to our criteria. Although IAP debtholders were offered an
increase in the interest rates on the new debt, we believe the increase in
pricing did not adequately compensate lenders for the extension of maturities,
which, under our criteria, resulted in lenders receiving less value than the
promise of the original securities. We believe that lenders accepted IAP's
offer largely because of the perceived risk that the issuer may not otherwise
fulfill its original obligations. We view this exchange as distressed rather
If we receive adequate information, we expect to reassess our corporate credit
rating on IAP over the next few weeks. It is our preliminary expectation that
the corporate credit rating will likely be in the 'CCC' category but could
possibly be as high as 'B-'. Alternatively, we would withdraw the corporate
credit rating if we do not receive adequate information.
Although the transaction was not a deleveraging event, the post-exchange
capital structure alleviates IAP's near-term debt maturities as the first-lien
credit facility was due to expire at the end of this year. However, we still
consider IAP's financial risk profile to be "highly leveraged." Despite the
recent refinancing, we assess the company's liquidity as "less than adequate"
under our criteria because of potentially tight covenant headroom and our view
that the company does not have the capacity to absorb low probability
The ratings on IAP also reflect our revised view of the company's business
risk profile as "vulnerable" instead of "weak." The business is marked by
revenue concentration from large contracts and the less-predictable nature of
contingency operations. We believe potential cuts in federal defense spending,
given current deficit-reduction efforts, present risks to demand for IAP's
services over time. Although the company has a good rebid record on contracts
and low fixed capital requirements, we believe its EBITDA margin will remain
thin at less than 10%. We believe the company's margins are consistent with a
highly competitive market for its services. In addition, we score IAP's
management and governance as "weak," mainly because of our negative view on
the company's controlling ownership, which we believe has engaged in very
aggressive financial policy since 2005 that promotes the owners interests
above those of other stakeholders.
Related Criteria And Research
-- General Criteria: Methodology: Management And Governance Credit
Factors For Corporate Entities And Insurers, Nov. 13, 2012
-- General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Rating Implications Of Exchange Offers And Similar Restructurings,
Update, May 12, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
IAP Worldwide Services Inc.
Corporate Credit Rating SD/-- CCC/Watch Dev/--
Senior Secured Second Lien D CC/Watch Dev
Recovery Rating 6 6
Senior Secured First Lien D CCC/Watch Dev
Recovery Rating 3 3
IAP Worldwide Services Inc.
Senior Secured Second Lien NR D
Recovery Rating NR 6
Senior Secured First Lien NR D
Recovery Rating NR 3
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left