Peraton Corp.

The negative outlook reflects our expectation that debt leverage will remain elevated for a longer period of time than we had previously forecast and the risk that it might not improve as we expect. We expect debt to EBITDA of 6.2x-6.6x in 2020 before improving to below 6x in 2021. We could lower ratings on Peraton if debt to EBITDA remained above 7x through the first half of 2020 and appeared unlikely to improve. This could occur if the company faced integration difficulties with Solers, had operating challenges that resulted in lower earnings or cash flow, or pursued a debt-financed acquisition or dividend payment that increased leverage. We could revise the outlook to stable if debt to EBITDA appeared on

...Peraton's 2019 revenue was significantly lower than expected, but the company won some important recompetes. The company failed to reach previous growth targets due to the inability to win as much new business as expected as well as delays on other new business starts. Most notably, Peraton was unsuccessful in its bid on and subsequent protest regarding the large Air Force ground systems contract known as EDIS. Although we had expected leverage to decline after the Solers acquisition in 2019, the lower-than-expected revenue and earnings resulted in leverage remaining higher than we forecast. However, the company successfully won multiple recompetes, including for its largest contract, the NASA space exploration network services and evolution (SENSE) contract. The five-year $1.8 billion contract should support future revenue growth. We expect revenue and earnings growth to result in leverage reduction, but the improvement could be capped due to potential future acquisitions. Revenue growth...

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