UKG Inc.'s Proposed $400 Million Non-Fungible Incremental First-Lien Term Loan Due May 2026 Rated 'B-' (Recovery: '3')

NEW YORK (S&P Global Ratings) May 23, 2023--S&P Global Ratings today assigned its 'B-' issue-level rating and '3' recovery rating to UKG Inc.'s proposed $400 million non-fungible incremental first-lien term loan due May 2026. The '3' recovery rating indicates our expectation for meaningful (50%-70%; rounded estimate: 55%) recovery in the event of a payment default. At the same time, we affirmed our 'B-' issue-level rating on the company's existing first-lien senior secured debt, which will rank pari passu with this proposed incremental non-fungible first-lien term loan, and our 'CCC' issue-level rating on its secured second-lien debt. Under the proposed transaction, UKG will use the net proceeds from the issuance to repay outstanding borrowings on its revolver and will use any

...Inc., published April 25, 2023, on RatingsDirect. ISSUE RATINGS--RECOVERY ANALYSIS Key analytical factors - Our simulated default scenario analysis on UKG contemplates a default in 2025 as the company faces strong price competition from the crowded human capital management (HCM) space, leading to severe attrition among its existing client base and an inability to cover its debt and interest expense. - Our updated recovery analysis now assumes a capital structure comprising $7.03 billion of first-lien term loans due in 2026, a $1.45 billion second-lien term loan due in 2027, and a $545 million revolving credit facility due in 2026. - In our analysis, we value the company as a going concern to maximize the value to its creditors. - We applied a 7x EBITDA multiple to an assumed distressed emergence EBITDA of $655 million to derive an estimated gross recovery value of $4.5 billion. - The valuation multiple is consistent with those we use for similar software companies. Simulated default assumptions...

Ratings Action