Research Update: Allied Universal Topco LLC Downgraded To 'B-' On Continued Cost Pressures, Outlook Stable; Issue Ratings Lowered

U.S. manned security provider Allied Universal continues to experience higher than anticipated integration costs, slower than expected increases in bill rates relative to wage rates, and tightening labor markets, resulting in adjusted debt to EBITDA projected to be in the low-10x area and minimal free operating cash flow (FOCF) by fiscal year end Dec. 31, 2018. We are lowering our corporate credit rating on the company to 'B-' from 'B+'. We are also lowering the first and second-lien issue-level ratings to 'B-' and 'CCC', respectively. The stable outlook reflects our view that credit metrics will continue to be elevated; however, we expect the company will modestly expand EBITDA margins, maintain retention rates in the low-90% area, and grow revenues organically

...+ U.S. manned security provider Allied Universal continues to experience higher than anticipated integration costs, slower than expected increases in bill rates relative to wage rates, and tightening labor markets, resulting in adjusted debt to EBITDA projected to be in the low-10x area and minimal free operating cash flow (FOCF) by fiscal year end Dec. 31, 2018. + We are lowering our corporate credit rating on the company to 'B-' from 'B+'. + We are also lowering the first and second-lien issue-level ratings to 'B-' and '###', respectively. + The stable outlook reflects our view that credit metrics will continue to be elevated; however, we expect the company will modestly expand EBITDA margins, maintain retention rates in the low-90% area, and grow revenues organically in the low- to mid-single-digit percent range, such that it has sufficient liquidity to manage operations....

Research Update