Research Update: Tosca Services LLC Downgraded To ?CCC+? From ?B-? On Sustained Negative Free Operating Cash Flow; Outlook Is Negative

While Tosca Services LLC's EBITDA generation has improved modestly over the 12 months ended March 31, 2023, the company continues to report negative free operating cash flow (FOCF) due to high capital expenditures (capex). We expect that higher interest rates will offset moderately lower capex during the remainder of the year, resulting in continued negative FOCF. As a result, we believe the company will continue to rely on its asset-based lending (ABL) facility to fund the outflows. Therefore, we lowered our issuer credit ratings on Tosca to 'CCC+' from 'B-'. At the same time, we lowered our rating on the company's first-lien term loan to 'CCC+' from 'B-'. The recovery rating remains '3', reflecting our expectation of meaningful (50%-70%; rounded

...- While Tosca Services LLC's EBITDA generation has improved modestly over the 12 months ended March 31, 2023, the company continues to report negative free operating cash flow (FOCF) due to high capital expenditures (capex). - We expect that higher interest rates will offset moderately lower capex during the remainder of the year, resulting in continued negative FOCF. As a result, we believe the company will continue to rely on its asset-based lending (ABL) facility to fund the outflows. - Therefore, we lowered our issuer credit ratings on Tosca to '###+' from 'B-'. At the same time, we lowered our rating on the company's first-lien term loan to '###+' from 'B-'. The recovery rating remains '3', reflecting our expectation of meaningful (50%-70%; rounded estimate: 50%) recovery in the event of a default. - The negative outlook reflects our expectation that Tosca's cash flow deficits will continue over the next 12 months, which could pressure liquidity. Although the company has no near-term...

Research Update