Prometric Holdings Inc. Rating Lowered To 'B-' On Pressures Stemming From The Coronavirus; Outlook Negative

  • The growing number of educational test center closures related to the global coronavirus pandemic will weaken Prometric Holding Inc.'s operating performance in fiscal 2020.
  • We are lowering our issuer credit rating on Prometric to 'B-' from 'B' because we now expect lower testing volumes will prevent free operating cash flow (FOCF) to debt from increasing above our 5% downgrade threshold in fiscal 2020.
  • The negative outlook reflects the uncertainty surrounding the extent of the coronavirus' impact on Prometric's operating performance and its ability to maintain positive FOCF over the next 12 months. While Prometric has closed its test centers in North America for 30 days, we believe closures could be extended.
NEW YORK (S&P Global Ratings) March 24, 2020—S&P Global Ratings today took the rating actions listed above.
The downgrade reflects our expectation that credit metrics will continue to be pressured in 2020.   Prometric's FOCF was constrained in 2019 due to contract losses and restructuring initiatives, with FOCF to debt of 3.4%. We previously expected FOCF to debt to improve above 5% in 2020 due to recently won contracts resulting in relatively flat revenue, and lower restructuring costs resulting in EBITDA growth. We now expect delays in testing due to test center closures from the coronavirus will pressure EBITDA and keep FOCF to debt below 5% in 2020.
The negative outlook reflects the uncertainty surrounding the extent of the coronavirus' impact on Prometric's operating performance and its ability to maintain positive FOCF over the next 12 months. While Prometric has closed its test centers in North America for 30 days, we believe closures could be extended.
We could lower the rating if the company generates negligible FOCF over the next few quarters, which could occur if test center closures are prolonged. This would likely result in greater reliance on the company's cash balance and revolving credit facility and constrain the company's liquidity.
We could revise the outlook to stable if the company reopens its test centers to full capacity and testing volumes return to previous levels before the outbreak, such that the company generates positive cash flows on a sustained basis.
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