FCG Acquisitions Inc.'s Proposed $150 Million Non-Fungible Incremental First-Lien Term Loan Rated 'B-' (Recovery: '3')

DES MOINES (S&P Global Ratings) May 24, 2022--S&P Global Ratings today assigned its 'B-' issue-level rating and '3' recovery rating to FCG Acquisitions Inc.'s proposed $150 million non-fungible incremental first-lien term loan. The '3' recovery rating indicates our expectation for meaningful (50%-70%; rounded estimate: 50%) recovery in the event of a default. FCG will use the proceeds from the proposed term loan, along with about $19 million of remaining capacity under its second-lien delayed draw term loan facility, to fund nine acquisitions currently under letters of intent. This contemplated level of acquisitions is within the range we incorporated in our prior base-case scenario, thus the transaction does not materially alter our forecast for high S&P Global Ratings-adjusted debt leverage. Therefore,

...Key analytical factors - Our simulated default scenario contemplates a default occurring in 2024 due to sharp revenue and margin declines arising from the combination of an economic contraction, increasing price competition, and operational inefficiencies. - The gross enterprise value of $573 million is based on an emergence EBITDA of $115 million. We believe that the company's lenders will aim to maximize its value and pursue a reorganization rather than a liquidation in a default scenario. Therefore, we value FCG on a going-concern basis and apply a 5x multiple to our projected emergence EBITDA. Simulated default assumptions - Simulated year of default: 2024 - EBITDA at emergence: $114.6 million - EBITDA multiple: 5.0x - Jurisdiction: U.S. - Revolver facility assumed 85% drawn at default. Simplified waterfall - Gross enterprise value: $572.8 million - Net enterprise value (after 5% administrative costs): $544.1 million - Valuation split (obligors/nonobligors): 85%/15% - Value available...

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