Moody's affirms INAP B3 rating, outlook changed to negative
Nov 19, 2019 2:54:26 GMT
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Post by gutset on Nov 19, 2019 2:54:26 GMT
Rating Action: Moody's affirms Internap's B3 rating, outlook changed to negative
18 Nov 2019
New York, November 18, 2019 -- Moody's Investors Service (Moody's) has affirmed the B3 corporate family rating (CFR) of Internap Corporation (Internap) and changed the outlook to negative from stable. Moody's has also affirmed the company's B3-PD probability of default rating (PDR) and B3 rating on the company's senior secured credit facilities, which include the company's $435 million term loan and $35 million revolver. The speculative grade liquidity (SGL) rating has been downgraded to SGL-3 from SGL-2, indicating adequate liquidity. The adequate liquidity reflects cash on hand, revolver availability, expectations for modest free cash flow generation and covenant flexibility provided under a recent credit agreement amendment.
Affirmations:
..Issuer: Internap Corporation
.... Corporate Family Rating, Affirmed B3
.... Probability of Default Rating, Affirmed B3-PD
....Senior Secured Term Loan, Affirmed B3 (LGD3)
....Senior Secured Revolving Credit Facility, Affirmed B3 (LGD3)
Downgrades:
..Issuer: Internap Corporation
.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2
Outlook Actions:
..Issuer: Internap Corporation
....Outlook, Changed To Negative From Stable
RATINGS RATIONALE
The outlook change is based on the company's weak organic revenue and EBITDA growth and limited visibility into the timing of any operational stabilization or positive top line inflection. There is a risk of continuing execution difficulties associated with improving sales force productivity and increasing capacity utilization across Internap's data center portfolio. While the company's strategic exits from underperforming partner data centers have driven some of the recent top line pressure, organic growth from existing and new customers remains weak despite good hybrid cloud demand in the company's Tier 1 markets. Stronger bookings growth and increased monthly recurring revenue will be predicated upon improved sales force efforts in the retail colocation segment and focused product offerings in the cloud segment. The company's ongoing strategic initiatives, which include potential non-core asset sales and potential M&A and other related actions, could aid turnaround efforts and boost revenue growth potential but have yet to gain material traction to date. Internap will not meet Moody's previous expectations for debt leverage (Moody's adjusted) to be on track towards 6.5x by year-end 2019. If Internap's debt leverage (Moody's adjusted) were to steadily trend towards 6x by year-end 2020, the outlook could be stabilized. Moody's affirmation of Internap's B3 CFR is predicated on steady improvement in bookings, capital investing discipline and free cash flow generation in 2020.
Internap's B3 CFR reflects its small scale, weak organic revenue growth and elevated leverage of slightly above 7x (Moody's adjusted), driven in part by debt undertaken to fund the February 2018 acquisition of SingleHop, LLC, a provider of highly-automated, scalable managed hosting and on-demand Infrastructure as a Service solutions. Following a multi-year business realignment strategy, the company has materially reduced exposure to a lower margin partner data center business and focused on customer growth in its 14 high quality and company-controlled flagship data centers in Tier 1 US markets. While this strategy resulted in falling revenue but expanding margins initially, Internap's margins have largely plateaued at still below industry average levels. These limiting factors are offset by Internap's stable base of contracted recurring revenue, strong base of high quality assets, established market position in the fast growing collocation, managed services and cloud segments and disciplined success-based capital investing.
The SGL-3 rating on Internap reflects Moody's expectation that the company will maintain adequate liquidity over the next 12-18 months supported by approximately $11 million of cash on hand and $21 million available under its $35 million revolver as of September 30, 2019. Moody's expects the company to generate modest free cash flow in 2020. An October 2019 amendment to Internap's credit agreement provides the company additional flexibility as the total net leverage ratio will now be maintained at 7.25x through a test period date ending December 31, 2020, with that ratio stepping down to 5.5x on March 31, 2021.
The instrument ratings reflect both the probability of default of Internap, as reflected in the B3-PD probability of default rating, an average expected family recovery rate of 50% at default given the high mix of non-facilities based revenue inherent in the company's business, and the priority of claims of the debt instruments in the capital structure. The senior secured credit facilities, which include the company's $35 million revolver and $435 million term loan, are rated B3, in line with the B3 CFR.
The negative outlook reflects Moody's view that Internap's credit metrics will remain under pressure given weak organic revenue and EBITDA growth trends. The negative outlook also reflects Moody's expectation that the company's elevated leverage of over 7x (Moody's adjusted) will weigh on new customer growth potential relative to the overall industry's growth.
Moody's could consider a rating upgrade if free cash flow approaches 5% of debt and leverage were to trend towards 4x (both on a Moody's adjusted basis).
Downward rating pressure could develop if liquidity becomes strained or Moody's adjusted leverage is sustained above 6.5x.
The principal methodology used in these ratings was Communications Infrastructure Industry published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Reston, Virginia, Internap Corporation is a publicly traded provider of data center and internet protocol services. The company reported about $298 million in revenue for the last 12 months ended September 30, 2019.
18 Nov 2019
New York, November 18, 2019 -- Moody's Investors Service (Moody's) has affirmed the B3 corporate family rating (CFR) of Internap Corporation (Internap) and changed the outlook to negative from stable. Moody's has also affirmed the company's B3-PD probability of default rating (PDR) and B3 rating on the company's senior secured credit facilities, which include the company's $435 million term loan and $35 million revolver. The speculative grade liquidity (SGL) rating has been downgraded to SGL-3 from SGL-2, indicating adequate liquidity. The adequate liquidity reflects cash on hand, revolver availability, expectations for modest free cash flow generation and covenant flexibility provided under a recent credit agreement amendment.
Affirmations:
..Issuer: Internap Corporation
.... Corporate Family Rating, Affirmed B3
.... Probability of Default Rating, Affirmed B3-PD
....Senior Secured Term Loan, Affirmed B3 (LGD3)
....Senior Secured Revolving Credit Facility, Affirmed B3 (LGD3)
Downgrades:
..Issuer: Internap Corporation
.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2
Outlook Actions:
..Issuer: Internap Corporation
....Outlook, Changed To Negative From Stable
RATINGS RATIONALE
The outlook change is based on the company's weak organic revenue and EBITDA growth and limited visibility into the timing of any operational stabilization or positive top line inflection. There is a risk of continuing execution difficulties associated with improving sales force productivity and increasing capacity utilization across Internap's data center portfolio. While the company's strategic exits from underperforming partner data centers have driven some of the recent top line pressure, organic growth from existing and new customers remains weak despite good hybrid cloud demand in the company's Tier 1 markets. Stronger bookings growth and increased monthly recurring revenue will be predicated upon improved sales force efforts in the retail colocation segment and focused product offerings in the cloud segment. The company's ongoing strategic initiatives, which include potential non-core asset sales and potential M&A and other related actions, could aid turnaround efforts and boost revenue growth potential but have yet to gain material traction to date. Internap will not meet Moody's previous expectations for debt leverage (Moody's adjusted) to be on track towards 6.5x by year-end 2019. If Internap's debt leverage (Moody's adjusted) were to steadily trend towards 6x by year-end 2020, the outlook could be stabilized. Moody's affirmation of Internap's B3 CFR is predicated on steady improvement in bookings, capital investing discipline and free cash flow generation in 2020.
Internap's B3 CFR reflects its small scale, weak organic revenue growth and elevated leverage of slightly above 7x (Moody's adjusted), driven in part by debt undertaken to fund the February 2018 acquisition of SingleHop, LLC, a provider of highly-automated, scalable managed hosting and on-demand Infrastructure as a Service solutions. Following a multi-year business realignment strategy, the company has materially reduced exposure to a lower margin partner data center business and focused on customer growth in its 14 high quality and company-controlled flagship data centers in Tier 1 US markets. While this strategy resulted in falling revenue but expanding margins initially, Internap's margins have largely plateaued at still below industry average levels. These limiting factors are offset by Internap's stable base of contracted recurring revenue, strong base of high quality assets, established market position in the fast growing collocation, managed services and cloud segments and disciplined success-based capital investing.
The SGL-3 rating on Internap reflects Moody's expectation that the company will maintain adequate liquidity over the next 12-18 months supported by approximately $11 million of cash on hand and $21 million available under its $35 million revolver as of September 30, 2019. Moody's expects the company to generate modest free cash flow in 2020. An October 2019 amendment to Internap's credit agreement provides the company additional flexibility as the total net leverage ratio will now be maintained at 7.25x through a test period date ending December 31, 2020, with that ratio stepping down to 5.5x on March 31, 2021.
The instrument ratings reflect both the probability of default of Internap, as reflected in the B3-PD probability of default rating, an average expected family recovery rate of 50% at default given the high mix of non-facilities based revenue inherent in the company's business, and the priority of claims of the debt instruments in the capital structure. The senior secured credit facilities, which include the company's $35 million revolver and $435 million term loan, are rated B3, in line with the B3 CFR.
The negative outlook reflects Moody's view that Internap's credit metrics will remain under pressure given weak organic revenue and EBITDA growth trends. The negative outlook also reflects Moody's expectation that the company's elevated leverage of over 7x (Moody's adjusted) will weigh on new customer growth potential relative to the overall industry's growth.
Moody's could consider a rating upgrade if free cash flow approaches 5% of debt and leverage were to trend towards 4x (both on a Moody's adjusted basis).
Downward rating pressure could develop if liquidity becomes strained or Moody's adjusted leverage is sustained above 6.5x.
The principal methodology used in these ratings was Communications Infrastructure Industry published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Reston, Virginia, Internap Corporation is a publicly traded provider of data center and internet protocol services. The company reported about $298 million in revenue for the last 12 months ended September 30, 2019.