OREANDA-NEWS. S&P Global Ratings said today that it has affirmed its 'B' long-term corporate credit rating on NEWAsurion Corp. and its subsidiaries Lonestar Intermediate Super Holdings LLC and AsurionLLC. We also revised our recovery rating on Asurion LLC's first-lien credit facility to '2L' from '3H', indicating a substantial expectation of recovery (70%-90%--lower half of the range) in the event of default. This led us to raise our issue-level rating on this debt to 'B+' from 'B'. At the same time, we have affirmed our '6' recovery rating on Asurion's second-lien term loan, resulting in an issue-level rating of 'CCC+'. The outlook remains positive.

At the same time, we assigned our 'CCC+' rating with a '6' recovery rating, indicating our expectation of a negligible recovery (0%-10%) in the event of default, to Lonestar's planned $550 million senior unsecured debt maturing in 2021.

"Our ratings continue to reflect NEWAsurion's satisfactory business risk profile and highly leveraged financial risk profile," said S&P Global Ratings credit analyst Neal Freedman. "The company's recent recapitalization has reduced private-equity ownership to less than 40%, resulting in or revising our view of its financial policy to neutral, reflecting an expected more-conservative financial policy and less-volatile overall credit profile relative to peers."

We also believe that, despite the new debt issuance, year-end 2016 debt to EBITDA will be below 6.0x and EBITDA margins above 20% based on NEWAsurion's strong first-half 2016 operating performance, with first-half EBITDA increasing about 18% over the 2015 period. The increase stemmed primarily from strong subscriber growth coupled with subscribers purchasing more, and higher-margin, products. The revised recovery rating reflects our increased expectation of recovery based on an increased enterprise value resulting from the company's improved operating performance, as well as the additional buffer provided by the senior unsecured debt issuance.

"The positive outlook reflects our expectation that NEWAsurion's continued earnings growth will result in an improved overall credit profile," Mr. Freedman continued. "For 2016, we expect revenue growth in the mid - to high-single digits and an EBITDA margin of more than 20%, resulting in debt to EBITDA of 5.0x–6.0x and EBITDA interest coverage of at least 2.5x. Although the 2016 reduction of private-equity ownership was equity funded, if any future reduction is funded through additional debt issuance, we expect that leverage will not exceed 6x."

We could affirm our ratings and revise the outlook to stable if NEWAsurion's earnings or debt levels were to result in debt to EBITDA consistently above 7x. This could occur if the company's earnings were to decline as a result of negative growth or compressed margins, or if it were to adopt a more-aggressive financial policy.

"We could raise the corporate credit and issue-level ratings by one notch within the next 12 months if NEWAsurion continues its earnings growth while maintaining financial leverage below 6x," Mr. Freedman added. This would likely occur through revenue growth (mid - to high-single digits in 2016) and stable margins (at least 20% on an EBITDA basis).