S&P rates Virtusa B

S&P said it assigned a B rating to Virtusa Corp. (Austin HoldCo Inc.). The agency also gave a B+ issue-level and 2 recovery ratings to the company’s first-lien debt, and a CCC+ issue-level and 6 recovery ratings to the unsecured notes.

Baring Private Equity Asia plans to acquire the company. The company will fund the transaction with about $1.18 billion of sponsor equity, a $600 million first-lien term loan, $300 million of senior unsecured notes, $231 million of cash and an undrawn $125 million revolver.

“The B issuer credit rating reflects Virtusa’s high initial S&P Global Ratings-adjusted leverage (excluding planned cost control) in the high-6x area at transaction close, relatively small scale within a competitive market environment and its highly concentrated client base. This is partly offset by good top-line growth in recent years, strong relationships with customers, and the opportunity to significantly optimize costs,” S&P said in a press release.

The outlook is stable. The outlook reflects an expectation Virtusa’s cost-optimization efforts will lead to a material improvement in EBITDA margins and reduce leverage toward the low-5x area by the end of 2021, S&P said.

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