Kronos Acquisition Holdings Inc.

The stable outlook reflects our view that despite high leverage and tight EBITDA interest coverage Kronos will maintain adequate liquidity through its asset-based loan (ABL) facility. Based on our forecast, we expect the company to have stable EBITDA and generate sufficient cash flows to cover fixed charges. We could lower the ratings if Kronos' liquidity position deteriorated such that the company was not able to service its fixed charges of interest and capex. This could occur if the company's availability under its ABL facility decreased significantly as a result of a material drop in EBITDA and free cash flows. Although unlikely in the next 12 months, we could raise the ratings if the company's leverage and EBITDA interest coverage improved

...The company's unsustainable capital structure limits financial flexibility. S&P Global Ratings believes that Kronos Acquisition Holdings Inc.'s heavy debt burden is unsustainable over the medium term. Since fiscal 2016, Kronos has completed several acquisitions totaling about US$400 million. As a result, the company's debt has increased by about US$400 million since December 2016 to fund these acquisitions and growth capital expenditures (capex). However, S&P Global Ratings' adjusted EBITDA has grown modestly in the past three years, eventually leading to what we believe is an unsustainable adjusted debt-to-EBITDA of above 9.5x as of June 30, 2019, from about 9.0x as of December 2016. We believe such a capital structure offers scant protection against unexpected EBITDA underperformance. Low EBITDA interest coverage and thin free cash flows increase credit concerns.We forecast Kronos to generate EBITDA interest coverage in the low 1x area in the near term. We believe that such tight coverage...

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