Allied Universal Topco LLC

The stable outlook reflects our view that, over the next 12 months, the U.S. labor markets will stabilize; Allied will make steady progress executing the G4S integration, which will result in adjusted EBITDA margins (S&P Global Ratings-calculated basis) sustained in the low-7% area; and adjusted leverage will modestly decline to the mid- to high-8x area by year-end 2022 from the pro forma high-8x area at transaction close. We could lower the ratings if: Operating performance or gross margins were weaker than expected with no likelihood of improvement; There were worse-than-expected FOCF deficits or a sharp increase in adjusted leverage; or The company increasingly relied on the revolving credit facility to fund operations. This could occur if the company had difficulty

...Tight U.S. labor markets and possible mandatory vaccinations are likely to pressure profitability in 2022. Typically, the industry's profit margins are counter-cyclical because high unemployment rates associated with economic recessions have been a tailwind for Allied Universal's profitably due to lower non-billed overtime, training, and recruiting costs. However, over the past two quarters, Allied reported year-over-year and sequential gross margin declines because the tight U.S. labor market hurt the company's employee turnover and increased nonbillable overtime wages. This year, turnover has spiked to about 70%, up from about 60% in 2020. In addition, possible federal and state mandatory vaccination requirements for employers may lead to additional employee churn. As of the recent quarter, about 80% of its approximate 800,000 global employees were vaccinated. Partially offsetting the expense pressures is our expectation for higher revenue growth when contracts reset, ultimately passing...

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