Allied Universal Topco LLC

High unemployment rates, such as those incurred during the COVID-19 pandemic, benefit the company by broadening its available labor pool. While the benefit has yet to be seen in core turnover rates, we expect this to be a future margin driver. S&P Global Ratings' economists expect the unemployment rate to remain elevated at 8.4% and 6.7% for 2020 and 2021, respectively. The stable outlook on AU reflects our expectation that its credit metrics will remain weak, albeit improving, over the next 12 months as higher bill rates and the realization of synergies offset cost pressures and support earnings growth. We expect the company's leverage to remain elevated as it continues to pursue a debt-funded M&A strategy with leverage in the

...Higher billing rates should support an increase in Allied Universal Topco LLC's (AU's) revenue and profit margin over the next 12 months. A heightened focus on safety during the pandemic and AU's ability to offer value-added services such as temperature checks, sanitary inspections, and crowd control will offer meaningful tailwinds in billing rates, thereby offsetting the pandemic-fueled decline in billable hours and driving low to mid-single digit organic revenue growth in 2020. Moreover, lower labor costs (hourly wages, overtime pay) and improved employee attrition should result in a 100- to 120-basis-point (bp) adjusted EBITDA margin expansion, thereby supporting free operating cash flow in the $200 million -$300 million range. AU's organic revenue grew 4% in the third quarter, reflecting mid-single-digit growth in bill rates as a result of selling value-added services, which was partially offset by low-single-digit decline in billable hours, which led to a 285-bp gross margin expansion....

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