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StoneMor Partners LP 'CCC+' Issuer Credit Rating Affirmed After Covenant Amendment; Outlook Remains Negative

  • StoneMor Partners LP has entered into its eighth credit agreement amendment. Its revolving credit facility lenders have frozen the company's access to the revolver and accelerated the revolver maturity to May 1, 2020.
  • StoneMor obtained a $35 million last out revolving loan (bridge loan) from its largest unitholder, with the intention to draw $15 million initially. We believe that this financing should provide StoneMor with sufficient liquidity over the next 12 months.
  • We are affirming our 'CCC+' issuer credit rating on the company. The outlook remains negative.
  • We are also affirming our 'B' issue-level rating on the company's secured revolver and our 'CCC+' issue-level rating on the company's senior unsecured notes. Our recovery ratings of '1' and '3', respectively, are unchanged, though we have revised our recovery percentage estimate on the unsecured debt to 50% from 65% to reflect greater priority debt.
  • The negative outlook reflects risks to our base case, and the prospect for a near-term downgrade if the company does not make progress to refinance its capital structure, liquidity becomes restricted, violates its covenants, or engages in a transaction that we view as tantamount to a default.
NEW YORK (S&P Global Ratings) Feb. 4, 2019--S&P Global Ratings today took the 
rating actions listed above. The rating affirmation reflects our view that 
StoneMor's capital structure is unsustainable and reflects our expectation 
that the company will produce cash flow deficits in 2019. However, we affirmed 
the rating because we believe the company has sufficient liquidity over the 
next 12 months given the new bridge loan. Following the credit facility 
amendment, its first debt maturity is in May 2020. The amendment also changed 
the previous leverage/coverage-based covenants to a minimum EBITDA covenant. 
We expect the company to meet its covenant requirements, but believe that 
covenant headroom will be very tight and the company will have to cut costs 
substantially to meet the minimum EBITDA requirements in 2019. 

The negative ratings outlook reflects risks to our current forecast that the 
company can remain in compliance with its EBITDA covenant, ensuring access to 
its new bridge loan. It also reflects prospects for a near-term one-notch 
downgrade if the company does not make progress refinancing its capital 
structure before its revolver becomes a current obligation in May 2019.

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