Carestream Health Inc. Proposed First-Lien Debt Rated 'B-', Second-Lien Debt Rated 'CCC+'

BOSTON (S&P Global Ratings) March 24, 2020--S&P Global Ratings today assigned issue-level ratings to Carestream Health Inc.'s (B-/Watch Neg/--) proposed debt issuance. We assigned a 'B-' issue-level rating and '3' recovery rating to the company's proposed first-lien credit facility (including a $118.5 million revolver and $581.5 million term loan), and a 'CCC+' issue-level rating and '5' recovery rating to its proposed $366.1 million second-lien term loan.
The '3' recovery rating on the first-lien debt indicates our expectation for meaningful recovery (50%-70%; rounded estimate: 65%) in the event of a payment default. The '5' recovery rating on the second-lien debt indicates our expectation for modest recovery (10%-30%; rounded estimate: 20%).
Our 'B-' issuer credit rating on Carestream remains on CreditWatch with negative implications. This indicates we could lower our ratings if Carestream's proposed refinancing is not successful and its capital structure remains current, which would increase the risk for near-term payment default or balance-sheet restructuring. Conversely, if Carestream successfully addresses its approaching maturities, we would likely affirm our issuer credit rating and remove it from CreditWatch, subject to review of final documentation and assuming final terms are not onerous.
For the full rationale, see our most recent research update on Carestream, published Feb. 18, 2020.
ISSUE RATINGS – RECOVERY ANALYSIS
Key analytical factors
  • The company's proposed debt structure includes a $118.5 million senior secured revolver, $581.5 million first-lien term loan, and $366.1 million second-lien term loan. In addition, the proposed terms allow the company to increase the first-lien term loan by $50 million and we assume the company will do so on the path to default.
  • Our simulated default scenario contemplates a default in 2022 because of an operational disruption or intensified competition.
  • We assume 85% of the available revolver is drawn and an increase in revolver borrowing costs resulting from LIBOR increases and credit deterioration.
  • We value the company on a going-concern basis using a 5x multiple of the default-level EBITDA. This is consistent with our treatment of peers with similar business positioning.
Simulated default assumptions
  • Simulated year of default: 2022
  • EBITDA at emergence: $127 million
  • EBITDA multiple: 5x
  • Jurisdiction: U.S.
Simplified waterfall
  • Net enterprise value (after 5% administrative costs): $603 million
  • Valuation split in % (obligors/nonobligors: 16%/84%
  • Collateral value available to first-lien creditors: $426 million
  • Unpledged value available to first-lien creditors: $72 million
  • Secured first-lien debt: $734 million
  • --Recovery expectations: 50%-70% (rounded estimate: 65%)
  • Unpledged value available to second-lien creditors: $105 million
  • Secured second-lien debt: $447 million (including paid-in-kind interest)
  • --Recovery expectations: 10%-30% (rounded estimate: 20%)
All debt amounts include six months of prepetition interest.
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