S&P rates Divisions, loans B

S&P said it gave Divisions Holding Corp. (DMG) and its planned five-year first-lien $40 million revolving credit facility and a $365 million seven-year first-lien term loan B ratings. The recovery rating on the facilities is 3.

“Our ratings on DMG reflect several key risks. These include adjusted leverage above 5x over the next 12-18 months and notable working capital requirements over the next year as the company grows; operations in the highly fragmented and price-competitive U.S. facilities management industry characterized by low switching costs and limited barriers to entry, which could pressure or cap EBITDA margins; its top five customers account for about 50% of fiscal year 2020 (ended March 31, 2021) revenues, though customers typically have multiple buying centers making independent decisions; and DMG's limited scale and scope compared to peers, with a narrow end-market focus largely on U.S. retailers and about $60 million in EBITDA,” the agency said in a press release.

S&P noted the company benefits from an asset-lite model, a national presence and a blue chip customer base.

The outlook is stable, reflecting an expectation that DMG will maintain steady credit measures over the next 12 months, including adjusted debt leverage of 5x-6x and free operating cash flow to debt in the mid-single-digit percent area, adjusted for one-time events, S&P said.

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