Cyxtera DC Holdings Inc. Downgraded To 'CCC' On COVID-19 Impact, Less Than Adequate Liquidity; Outlook Negative

  • We expect the economic impact from the COVID-19 pandemic to make it burdensome for Cyxtera DC Holdings Inc. to improve earnings and its already weak credit metrics over the next year.
  • Additionally, we believe the company has limited liquidity cushion to absorb extended economic stress.
  • We have lowered the issuer credit rating on Cyxtera to 'CCC' from 'B-' to reflect increased likelihood of a default or distressed exchange over the next year.
  • We have also lowered the issue level ratings by two notches, in line with the lowered issuer credit rating.
  • The negative outlook reflects significant uncertainty regarding the economic impact COVID-19 will have on Cyxtera, and that the lack of liquidity cushion could require the company to restructure as external sources of liquidity may not be readily available, in our view.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions above. We downgraded Cyxtera to 'CCC' because we believe the company does not have sufficient liquidity cushion to absorb an extended period with both elevated churn and an inability to attract new colocation clients. This will weaken EBITDA interest coverage, which we now forecast will fall below our downgrade threshold of 1.5x. We also forecast debt to EBITDA remaining unsustainable in 2020.
The negative outlook reflects our view that the company is vulnerable to nonpayment of its financial obligations over the next year given the adverse economic conditions and limited liquidity cushion.
We could lower the rating if the recession induced by the COVID-19 pandemic significantly restricts cash flow improvement, such that we believe a default or restructuring is likely within six months. This could be caused by pricing pressure, elevated churn, and an inability to obtain new clients.
We could upgrade Cyxtera over the next year if the company increases revenue, combined with successful cost-reduction initiatives that improve EBITDA margin, and the company deleverages on a sustained basis. We could also raise the rating if Cyxtera improves its liquidity position.
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