Dynamic Precision Group Inc. Rating Lowered To 'CCC+' On Refinancing Risk; Outlook Developing

  • Dynamic Precision Group Inc.'s (DPG's) revolver and term loan are maturing in December 2020, and we question the company's ability to refinance or extend the maturities given the current market turmoil as a result of the coronavirus outbreak.
  • Therefore, S&P Global Ratings is lowering its issuer credit rating on DPG to 'CCC+' from 'B-' and revising our outlook to developing.
  • At the same time, we are lowering the rating on the company's revolver and term loan to 'CCC+' from 'B-'. The recovery rating remains '3'.
  • The developing outlook reflects the uncertainty over DPG's ability to refinance given current markets, though there could be a positive rating action if it is successful and if the impact of lower production on the Boeing 737 MAX and the coronavirus effects remain similar to our current expectations.
NEW YORK (S&P Global Ratings) March 25, 2020--S&P Global Ratings today took the rating actions listed above.
We question DPG's (operates as Paradigm Precision) ability to refinance or extend the maturity of its credit facility given current market uncertainty.  The company's $70 million revolver and term loan, which has about $245 million outstanding, both mature in December 2020. However, credit markets have weakened over the past two weeks given the uncertainty surrounding the coronavirus impact on the global economy, and this could hinder the company's ability to refinance or extend maturities. Although we expect the company to maintain enough liquidity to weather the lower production on the 737 MAX and potential coronavirus impact, the company does not have enough cash to cover the maturities in December. The company recently drew on its revolver as a precaution, and has about $60 million of cash on hand, but no revolver availability.
S&P Global Ratings' developing outlook on DPG reflects uncertainty around the company's ability to refinance or extend the maturities on their revolver and term loan, both due in December 2020, because of the market volatility driven by the coronavirus. However, it also reflects that the company's credit metrics will likely be strong for the rating level, with debt to EBITDA expected to be about 5x in 2020 including the impact of lower production on the LEAP-1B engine for the 737 MAX and the impact of coronavirus.
We could lower the rating on DPG over the next three months (within six months of the maturity) if we believe the company will be unable to refinance its debt. This could be because of continued volatility in markets, because of the coronavirus, or less likely, production on the LEAP-1B being lower than we currently forecast.
We could raise our ratings on DPG over the next nine months if the company successfully refinances or extends the maturities on the revolver and term loan. Also, debt to EBITDA would have to remain below 7.5x, despite the impact of lower production on the LEAP-1B and the coronavirus.
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