Greenhill & Co. Inc. Outlook Revised To Negative On Potential Impact From Weaker Economic Outlook; 'BB' Ratings Affirmed

  • We believe Greenhill & Co. Inc. will likely underperform our previous expectations for 2020 as global economic conditions weaken due to the COVID-19 pandemic.
  • As a result, we believe there is risk that the company could sustain leverage above 3x, funds from operations (FFO) to debt below 25% and interest coverage below 6x, our thresholds for a downgrade.
  • We are revising our rating outlook on Greenhill to negative from stable.
  • We are also affirming our 'BB' issuer credit rating on Greenhill and our 'BB' issue rating on its senior secured term loan.
  • The negative outlook reflects the increased likelihood that slowing economic conditions will affect Greenhill's 2020 results to the extent that leverage is sustained above 3x, FFO to debt below 25%, and interest coverage below 6x--our triggers for a downgrade.
NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings said today it revised its outlook on Greenhill & Co. Inc. to negative from stable. At the same time, we affirmed our 'BB' issuer credit rating on Greenhill.
We also affirmed our 'BB' issue rating on Greenhill's senior secured term loan due 2024. The recovery rating remains '3', indicating our expectation for a meaningful recovery (50%) in the event of a default.
Greenhill's EBITDA was lower than we anticipated in 2019 as a result of lower-than-expected revenue ($301 million in 2019 versus $352 million in 2018) and tighter EBITDA margins. On our adjusted basis, leverage (adjusted debt to EBITDA) was 2.9x as of year-end, which was very close to our downside threshold of 3x. Additionally, FFO to debt and EBITDA to interest expense deteriorated to 23.8% and 3.8x, respectively. Both of these metrics were worse than our stated downgrade thresholds (25% and 6x, respectively).
The negative outlook reflects the increased likelihood that slowing economic conditions will affect Greenhill's 2020 results to the extent that leverage is sustained above 3x, FFO to debt below 25%, and interest coverage below 6x--our triggers for a downgrade.
We could lower the ratings on Greenhill over the next 12 months if we expect leverage to be sustained above 3x, FFO to debt below 25%, and interest coverage below 6x. We could also lower the rating on Greenhill if its position as a leading merger and acquisition adviser deteriorates meaningfully or if earnings volatility increases.
A revision of the outlook to stable would likely result from leverage returning closer to 2.5x and interest coverage above 6x on a sustained basis. An upgrade is unlikely over the next 12 months.
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