-- U.S. satellite imagery provider DigitalGlobe plans to acquire
competitor GeoEye Inc. in a stock and cash transaction valued at
-- We are placing our rating on DigitalGlobe on CreditWatch with negative
implications, given the heightened leverage associated with the transaction.
-- Within the next six to eight weeks, we plan to assess the overall
business risk profile of the combined company and time frame for it to achieve
improvement in credit metrics.
-- On completion of the transaction, we would withdraw all the ratings on
GeoEye, since DigitalGlobe expects to repay all debt held at GeoEye.
On July 24, 2012, Standard & Poor's Rating Services placed its ratings on
Longmont, Colo.-based DigitalGlobe Inc., including the 'BB' corporate credit
rating, on CreditWatch with negative implications.
The CreditWatch listing reflects the potential for higher leverage following
the acquisition of GeoEye Inc., which the companies expect to complete by the
first quarter of 2013, subject to regulatory and shareholder approvals.
DigitalGlobe plans to refinance GeoEye's debt in the weeks leading up to the
acquisition closing. It will also likely issue preferred shares to Cerberus,
which would receive 50% debt treatment under our adjustments. Our base-case
scenario also incorporates the elimination of revenues from GeoEye's National
Geospatial-Intelligence Agency (NGA) service-level agreement (SLA).
However, we expect DigitalGlobe to continue to benefit from revenues from its
own SLA with the NGA, and from the increased presence in the commercial
imagery processing and analytic services markets provided by GeoEye. We also
believe management's targeted cost synergies are largely attainable, although
we still expect leverage and funds from operations to debt to be elevated for
the 'BB' rating in 2013, at above 4x and below 20%, respectively. We could
therefore revise our financial risk profile to "aggressive" from
"significant," especially if we determine that improvement prospects could be
delayed or impaired by a potential drop in business from U.S. government
agencies, which are likely to comprise about 50% of total 2013 pro forma
Within the next six to eight weeks, we plan to assess the overall business
risk profile of the combined company and the time frame for it to achieve
improvement in credit metrics. At that time, we will either affirm the ratings
and remove them from CreditWatch, or leave them on CreditWatch, and indicate
that we will lower them at completion of the transaction, which is subject to
numerous regulatory approvals.
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Ratings Placed On CreditWatch
Corporate Credit Rating BB/Watch Neg/-- BB/Negative/--
Senior Secured BB+/Watch Neg BB+
Recovery Rating 2 2
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