May 30 - Standard & Poor’s Ratings Services said today that the recent acquisition of the remaining outstanding shares of Wellesley, Mass.-based business process outsourcing company Stream Global Services Inc. (Stream) by SGS Holdings LLC (Holdings) has no current effect on our ‘B+’ rating or stable rating outlook on the company due to the modest increase in debt related to the transaction.
Closely held Stream became a privately held company on April 27, 2012 through privately negotiated purchases of common stock by Holdings. Holdings’ equity holders--Ares Corporate Opportunities Fund II L.P., NewBridge International Investment Ltd., and EGS Dutchco B.V. (Sponsors)--funded the acquisition of the remaining shares primarily through $16 million of 10% convertible promissory notes maturing April 29, 2013. The notes are obligations of Holdings and not Stream. As part of the transaction, Stream was removed from the listing and registration of the American Stock Exchange on May 8, 2012.
We view Stream’s financial risk profile as “aggressive.” Our assessment reflects the company’s modest cash flow generation and volatile profit margins, which has led to highly variable credit metrics. Pro forma leverage on a consolidated basis for both Stream and Holdings, the transaction is 3.9x as of the last 12 months ended March 31, 2012 compared with 3.7x. Current last-12-month leverage is moderate for the rating and allows for some volatility in earnings during the year.
Stream was originally incorporated on June 26, 2007 as a blank check company for the purchase of acquiring operating businesses. It consummated its IPO on Oct. 17, 2007, receiving total gross proceeds of $250 million. On July 31, 2008, the company bought an operating business and shortly thereafter, changed its name to Stream Global Services Inc.
Stream’s service offerings include inbound telephone, email, and Internet-based services, providing technical support, sales and revenue generation, and customer care. The company is primarily focused in the computer hardware, telecom, and software verticals, but also has limited exposure to financial services, health care, media, travel, and retail sectors.
The stable outlook reflects several quarters of strengthening profitability and our expectation that Stream’s margins will remain near current levels, in spite of a highly competitive operating environment. The company’s corporate credit rating is constrained at the current ‘B+’ rating due to its private-equity ownership structure. However, we could lower the rating if competitive or industry pressures reduce profitability such that latest-12-month leverage exceeds the low-5x area on a sustained basis.