OREANDA-NEWS. S&P Global Ratings said today that it revised its outlook on Integro Parent Inc. to negative from stable and affirmed our 'B' long-term counterparty credit rating. Concurrently, we affirmed all issue ratings, including our 'B' rating and '3' recovery rating (indicating expectation of meaningful [50%-70%] recovery in the event of default) on the company's first-lien credit facility, and our 'CCC+' rating and '6' recovery rating (indicating expectation of negligible [0%-10%] recovery in the event of default) on the company's second-lien facility.

In addition, we assigned our 'B' long-term counterparty credit rating to Integro, the parent company where the audited financial statements reside. Integro Parent Inc. is an operating subsidiary that we view as core to the parent Integro; hence, the ratings are linked.

"The negative outlook reflects the decline in Integro's operating performance relative to our expectations, resulting in weakened credit-protection measures," said S&P Global Ratings credit analyst Stephen Guijarro. Specifically leverage deteriorated to 8.6x for the 12 months ended June 30, 2016, from 7.9x as of year-end 2015 based on our view of credit metrics. The increase in leverage is driven by less-than-expected margin expansion that has led to lower earnings to support the additional debt being taken given the company's growth strategy. In addition, the company has faced headwinds from unfavorable foreign-exchange translation as approximately 45% of its business is derived from London markets.

Under our base-case scenario, we expect expense-management initiatives in the first half of 2016 to lead to improved margins in the back half of 2016 and into 2017, resulting in leverage of less than 8x, a funds from operations-to-debt ratio of around 5%-10%, and EBITDA coverage of more than 2x by year end. We expect growth to come from various initiatives that have been underway by management including new recruitment and expanding cross-selling programs, as well as an active merger-and-acquisition pipeline. However, there is uncertainty involved, particularly given the company's small scale, sluggish organic growth, and continued tough market conditions.

We would consider lowering the ratings in the next 12 months if Integro's organic growth, cash-flow generation, or margins were to deteriorate meaningfully, putting pressure on its execution of strategy, increasing the risk of higher-than-expected financial leverage and/or weaker-than-expected EBITDA coverage. The specific trigger points that could lead to a downgrade include our forecasts that financial leverage would be above 7.5x and EBITDA coverage would be below 2.0x on a sustained basis.

During the next 12 months we do not expect to raise the rating. However, we could affirm the current ratings if the company can successfully execute on strategic business initiatives and demonstrate consistent earnings growth. We expect these facts to enable the company to reduce leverage to below 7.5x on a sustainable basis.