ELO Touch Solutions, which is backed by private equity firm The Gores Group, used an equity cure in the recent reporting period.
As a result, Standard & Poor’s revised the company’s outlook to negative, from stable, on May 28. The ratings agency affirmed the company’s CCC+ corporate rating at the same time.
“The outlook revision reflects Elo’s use of an equity cure in the second fiscal quarter of 2015, resulting from challenged performance during the first half of the year, and our view that the company will likely require additional support in the future to maintain covenant compliance,” Standard & Poor’s analyst Christian Frank said in a research note on May 28.
Standard & Poor’s also affirmed the B- rating on the company’s $175 million first-lien term loan due 2018 and its $15 million revolving credit facility due 2017. The loan has a recovery rating of 2, indicating expectations for recovery in the higher half of a 70-90% range on the debt in case of a default.
Standard & Poor’s also affirmed the CCC- issue-level rating, with a recovery rating of 6, on the company’s $85 million second-lien term loan due 2018, of which $37.5 million is outstanding. The 6 rating indicates an expected recovery of zero to 10% if the loan defaults.
Revenue is expected to decline in the mid-single digits in fiscal 2015, after growing by that degree in the fiscal year ended Sept. 31, 2014, Standard & Poor’s said in a research note.
Investment in new products is expected to weigh on margins in the 2015 fiscal year, then rebound. A stronger U.S. dollar has also hurt revenue and earnings this year, Standard & Poor’s said.
New products will probably help leverage, which is expected “increase modestly” this year from the low-5x area as of March 27, 2015. That level is down from an 8x peak as of June 28, 2013, Standard & Poor’s said.
“We believe that ELO’s new point-of-sale, digital signage, and touch screen component products could result in revenue growth over the next few quarters,” said S&P analyst Frank. “In the longer term, we believe that the company’s financial sponsor ownership will likely preclude sustained leverage reduction.”
Investors received allocations of a $260 million first- and second-lien financing backing the Gores Group’s $380 million purchase of ELO Touch Solutions in June 2012. Arrangers were Credit Suisse and Goldman Sachs.
The deal was structured as a $175 million, six-year first-lien term loan, which was issued at 96 and priced at L+650 (1.5% LIBOR floor), and a $85 million second-lien term loan, which was also issued at 96, with pricing of L+1,050 (1.5% floor). At issuance, corporate ratings were B/B2.
Moody’s has since downgraded the company to Caa1.
ELO Touch Solutions, based in Milpitas, Calif., supplies touch screens, touch monitors, and all-in-one touch computers. – Abby Latour