KCIBT Holdings L.P. Downgraded To 'B-' On Sustained High Debt Leverage; Outlook Stable; Debt Ratings Also Lowered

  • U.S. travel visa, passport, and immigration services company KCIBT Holdings L.P. has made slower-than-expected progress toward deleveraging from its original above 8x debt to EBITDA leverage at the time of its 2017 leveraged buyout (LBO), with the company prioritizing revolver-funded tuck-in acquisitions as part of its growth strategy.
  • Given our expectations for the company to continue to prioritize M&A as it looks to grow its immigration services and solutions business segment, we expect leverage to remain sustained over 7x, from our previous expectations of leverage below 6.5x in 2019.
  • Therefore, we are lowering our issuer credit rating to 'B-' from 'B'.
  • We are also lowering our issue-level ratings on the company's first-lien debt to 'B-' from 'B' and the second-lien debt rating to 'CCC+' from 'B-'.
  • The stable outlook reflects our expectation that the company will maintain adequate liquidity as it continues its high-paced M&A growth strategy, supporting modest leverage reduction to the low-7x area by year-end 2019.
NEW YORK (S&P Global Ratings) March 13, 2019--S&P Global Ratings today took 
the rating actions listed above. The downgrade reflects our view that the 
company's somewhat weaker-than-expected EBITDA performance through 2018 
coupled with its preference toward tuck-in acquisitions as a key growth 
strategy driver, will result in leverage sustained above 6.5x through year-end 
2020, up from our previous expectations that the company would be operating at 
leverage below 6.5x in 2019. As a result, we view the company's credit metrics 
including free operating cash flow to debt of less than 5%, as being more 
in-line with those of a 'B-' rated company. Despite operating with 
weaker-than-anticipated credit metrics, we expect above-GDP top-line growth, 
with net revenues increasing in the 10%-13% growth area in 2018 and 2019, 
reflecting moderate, low-single-digit percent organic base business growth 
(increasing sales of elective, premium-priced travel concierge services as 
well as modest price increases despite relatively flat visa volume gains) as 
well as acquisition contributions.

The stable outlook reflects our expectation for CIBT to maintain adequate 
liquidity over the next 12 months with modest leverage reduction as it 
continues its high pace of acquisitions, particularly toward somewhat 
lower-margin immigration businesses that should offer synergies once CIBT 
brings the companies onto its global operating platform. We expect adjusted 
debt to EBITDA to remain in the low-7x area by the end of 2019.

We could lower our ratings on KCIBT over the next year if operating 
performance weakens or profitability contracts such that we expect free 
operating cash flow (FOCF) deficits that result in a liquidity crisis or an 
inability to meet debt servicing requirements. We believe this scenario would 
result from unexpected costs related to difficulty integrating recent 
acquisitions, or a significant decline in sales due to decreased demand for 
travel visas, perhaps as a result of a recessionary environment, without 
offsetting price increases.  

We could raise the rating if we expect adjusted debt to EBITDA sustained below 
6.5x and FOCF to debt sustained in the mid-single-digit percent area. This 
would likely require a combination of selling a greater proportion of 
higher-margin elective services and volume growth from business wins, higher 
prices, and lower costs from scaling benefits. 

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