Speedcast International Ltd. Downgraded To 'B' On Funding And Governance Risks; On CreditWatch Negative

  • Speedcast International Ltd. disclosed that overdue payments to certain trade creditors have contributed to an additional funding requirement. The company's auditor noted that the funding uncertainty may cast doubt on the group's ability to continue as a going concern. We understand the company is in discussions with funding providers to secure additional sources of liquidity.
  • In addition, the company's senior management and board overhaul raises risks, in our view, regarding the effectiveness of its governance structures.
  • On Sept. 2, 2019, S&P Global Ratings lowered its issuer credit rating and its issue ratings on Speedcast to 'B' from 'B+'. At the same time, we placed the ratings on CreditWatch with negative implications. The recovery rating on the company's senior secured debt remains at '4' (45%), indicating average recovery prospects upon payment default.
  • The CreditWatch negative placement reflects the risk that the company may not be able to quickly resolve funding pressures.
MELBOURNE (S&P Global Ratings) Sept. 2, 2019--S&P Global Ratings today took the rating actions listed above. We lowered our ratings on Speedcast to reflect funding uncertainties and governance risks. Material overdue payments to certain trade creditors have contributed to an additional funding requirement. The company's auditor noted that the funding uncertainty may cast doubt on the group's ability to continue as a going concern. In our opinion, delayed supplier payments are not included as debt in the group's covenant calculation and somewhat obscured its underlying financial position. We understand the company is in discussions with funding providers to secure additional sources of liquidity.
In addition, the overhaul of Speedcast's senior management and board raises risks around the effectiveness of its governance structures, particularly during a period of financial stress. The chief financial officer resigned together with the chairman.
The CreditWatch negative placement reflects the risk that the company may not be able to quickly resolve funding pressures.
We could lower the rating if the company is unable to meet its funding requirement. We could also lower the rating if operational challenges further pressure its covenant headroom. We could affirm the rating with a stable outlook if the company addresses its funding requirements in a timely manner.
We are revising our assessment of liquidity to less than adequate. While we expect the Speedcast's sources of cash to exceed uses by at least 1.2x over the next 12 months, we believe there is uncertainty regarding the company's ability to access funding from its existing lenders or equity base.
In our view, Speedcast is unlikely to be able to absorb low probability, high impact events without the need for refinancing. The company is currently facing heavy scrutiny in debt and equity capital markets.
Having said this, we note that the company was able to successfully increase its revolving credit facility covenant of net debt to pro forma underlying EBITDA to 4.5x from 4.0x in July 2019.
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