Ahead DB Borrower LLC (Ahead Data Blue) And New Debt Assigned 'B' Ratings; Outlook Stable

Ahead DB Borrower LLC (doing business as Ahead Data Blue), a Chicago-based value-added reseller for data center and IT infrastructure products, is issuing a $65 million senior secured revolving credit facility and a $440 million senior secured term loan to support the combination of Ahead LLC and Data Blue LLC, and to refinance existing debt. Both entities are existing portfolio companies of Court Square Capital Partners.
We assigned a 'B' issuer credit rating to Ahead Data Blue, and our 'B' issue-level and '3' recovery ratings to the company's senior secured credit facility.
The stable outlook reflects our expectations for a successful integration of the two companies, along with other recent acquisitions, steady adjusted EBITDA margins that result in adjusted debt leverage in the mid-4x area over the next 12 months, and free operating cash flow to debt in the high-single-digits or above.
NEW YORK (S&P Global Ratings) Sept. 11, 2019--S&P Global Ratings today took the rating actions listed above. Our rating on Ahead Data Blue (Ahead) reflects the very fragmented and highly competitive industry for information technology (IT) outsourced services, its relatively narrow product base and limited scale, with significantly larger competitors, and high supplier concentration, with roughly 60% of sales coming from DellEMC. Our key risks are partially offset by a fast-growing services business, favorable exposure to data center and cloud solutions, and the company's good profit margins and free cash flow profile. The company derives most sales from the U.S., with geographic concentration on the east coast and central U.S.
The stable outlook reflects our forecast that Ahead will likely grow revenue in the low- to mid-single-digit area over the next two years (excluding the BoNY refresh), driven by high growth in the company's service offerings and potential cross-selling opportunities from the business combination. Our base-case expectation for the next 12 months is for adjusted debt to EBITDA in the mid-4x area and a smooth integration of the two businesses.
We could lower the rating if Ahead's revenue declines due to weak demand for DellEMC products, lower profitability due to increased competition, or difficulty integrating the two businesses, leading to diminished operating earnings such that leverage rises and remains above 6x. This could also result from the company pursuing debt-financed acquisitions or shareholder returns.
Although unlikely given its financial sponsor ownership, we could raise the rating if EBITDA growth or debt repayment results in sustained leverage below 4x. This would likely result from better-than-expected performance, a meaningful increase in revenues generated from higher margin services, and be contingent on management's commitment to maintain leverage at or below these levels.
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