OREANDA-NEWS. S&P Global Ratings assigned its 'B' corporate credit rating to Bellevue, Wash.-based Aspen Merger Sub Inc. (to become Coinstar LLC upon completion of the transaction). The outlook is stable.

At the same time, we assigned a 'B' issue-level rating and '3' recovery rating to the company's $610 million first-lien secured credit facility, which consists of a $75 million revolver due 2021 and $535 million first-lien term loan due 2023. The '3' recovery rating reflects our expectation for meaningful recovery in the event of default, at the lower end of the 50% to 70% range.

We also assigned a 'CCC+' issue-level rating and '6' recovery rating to the company's $135 million second-lien term loan due 2024. The '6' recovery rating indicates our expectation for negligible (0% to 10%) recovery.

"The rating reflects the company's participation in a concentrated industry that is highly dependent on host-retail partners and credit unions for revenues. Coinstar has a small revenue and EBITDA base and is burdened by a highly leveraged capital structure," said credit analyst Adam Melvin. "Still, the largely non-cyclical nature of the coin-counting industry, Coinstars' sizeable footprint, minimal regulatory risk, and above-average margins support its stable operating performance."

The stable outlook reflects our expectation for modest improvement of credit protection measures as the company grows through domestic and international kiosk expansion and continue its growth strategy to optimize its kiosk footprint and improve its cost structure through scale. With operational growth and modest debt reduction, we expect leverage to decline in the low - to mid-5x area by 2017.

We could consider a negative rating action if competitive pressures in the coin counting industry intensifies and contribute to weaker credit metrics or the company fails to successfully optimize its kiosk footprint through its growth strategy, hurting the company's margins. This could cause leverage to increase over 6.0x or maintain interest coverage below 3.0x. Though unlikely based on current full-year 2017 assumptions, we could lower the rating if the company's EBITDA margin fails to improve as a result of a decline in demand because of price increases, unfavorable fee arrangements, and/or poor execution of its international expansion strategy.

We could consider a positive rating action if the company exceeds our base-case expectations, such that leverage declines and remains below 4.5x and we believe the likelihood of material debt-financed dividends is low despite private equity ownership. In this scenario, the company substantially benefits from expanding its host relationships coupled with realizing growth through additional revenue generating opportunities, such as other gift card options within its kiosks, or successfully expanding its international footprint could lead to an upgrade.