- Curvature Inc. recently completed a second-lien debt exchange transaction that S&P Global Ratings deems a distressed exchange because the timing of some of the payments on the second-lien notes due October 28, 2024 have been postponed, while the ranking of $138.5 million of the existing second-lien notes have also been effectively lowered in the payment waterfall.
- We are lowering our issuer credit rating on Curvature to 'SD' (selective default) from 'CCC+'.
- We are also lowering our issue-level rating on the company's initial $175 million of second-lien notes to 'D' from 'CCC-'.
NEW YORK (S&P Global Ratings) April 5, 2019—S&P Global Ratings today took the rating actions listed above. The downgrade follows the exchange transaction, in which the company issued about $30 million of incremental second-lien notes to its financial sponsor, Partners Group. It also amended the terms of the second-lien notes such that about $18 million of annual interest payments will accrue for two years rather than paid in cash, and $138.5 million of the pro forma $205 million notes will be junior to the remaining $67.5 million of second-lien notes. S&P Global Ratings considers this a distressed debt exchange since we believe that the interest payment deferral on the second-lien notes together with a significant portion of the notes being effectively made more subordinated in the payment waterfall results in the noteholders being in a worse economic position than originally promised. We expect the transaction will provide Curvature with much needed liquidity support to help the company implement its business plan to stabilize revenues and cash flow generation through investments in its sales organization and cost rationalization. We believe that without this exchange transaction, the company's liquidity position would be weakened considerably in 2019 given its ongoing operational challenges. Over the coming days, we will reassess our issuer credit rating on Curvature. We could lower the rating if we believe Curvature's continued business deterioration will cause liquidity to weaken further, including persistent negative free cash flow or poor interest coverage below 1x. We will also review our issue-level ratings on the existing debt to reflect the company's revised capital structure. Our analysis will consider the company's competitive position, revised capital structure and liquidity position. Curvature is a U.S.-based provider of third-party maintenance for networking, server, and storage equipment, and also sells refurbished hardware along with value-added services including installation, maintenance, and managed services. Partners Group has owned Curvature since November 2016.
