PGX Holdings Inc. Downgraded To 'CCC+ On Tight Covenant Headroom; Outlook Negative

  • We expect U.S.-based credit report repair service provider PGX Holdings Inc. (d/b/a Progrexion) will continue to have slower-than-expected growth as it tries to meet an aggressive covenant schedule with three step-downs over the next 12 months. Therefore, we anticipate a higher risk of a covenant breach or payment default in the next 12 months without an unforeseen positive development.
  • As a result, we lowered our issuer credit rating on Progrexion to 'CCC+' from 'B-'. The outlook is negative.
  • At the same time, we lowered our issue-level ratings on Progrexion's senior secured first-lien credit facility to 'B-' from 'B' and on the senior secured second-lien loan to 'CCC-' from 'CCC'. The recovery ratings are unchanged.
  • The negative outlook reflects Progrexion's narrowing covenant cushion and weak recent operating performance, which could lead to a covenant breach over the next 12 months given its step-down schedule. The negative outlook also reflects the potential impact of any settlement with the Consumer Financial Protection Bureau (CFPB) following an investigation and the effect this would have on the company's ability to refinance its first-lien term loan, which becomes current in September 2019.
NEW YORK (S&P Global Ratings) April 2, 2019--S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects our expectations for 
slower-than-anticipated growth despite the improvements the company made in 
cost management against an aggressive covenant stepdown schedule. Under our 
forecast, these operational challenges result in very limited covenant 
headroom over the next 12 months bar an unforeseen positive development. In 
2018, the company began to prioritize the acquisition of higher quality 
customers to reduce expenses and improve profitability. While we view this as 
positive, this led to slower growth rates than historically but lower customer 
acquisition costs. Moreover, the potential impact of any settlement arising 
from the investigation by the CFPB remains uncertain.

The negative outlook reflects Progrexion's narrowing covenant cushion and weak 
recent operating performance which could lead to a covenant breach over the 
next 12 months given its active step-down schedule. The negative outlook also 
reflects the potential for PGX to face liquidity constraints from 
settlement-related costs and an inability to refinance or amend its first-lien 
term loan, which will become current in September 2019.

We could lower the rating if we believe a financial covenant breach or payment 
default is likely within the next 12 months, whether through competitive 
pressures, a large settlement, or an inability to refinance its capital 
structure.

We could stabilize the outlook or raise the rating if PGX is able to refinance 
or amend its capital structure and covenant levels. We would also look for 
clarity on any potential settlement amount. This assumes that leverage doesn't 
rise significantly from current levels.
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