EPIQ Systems (EPIQ) Placed on CreditWatch Negative by S&P

Standard & Poor's Ratings Services placed its 'BB-' corporate credit rating on Kansas City, Kan.-based EPIQ Systems (Nasdaq: EPIQ), and our issue-level ratings on Epiq's senior secured debt, on CreditWatch with negative implications.

The CreditWatch placement follows Epiq's announcement that it is reviewing strategic alternatives that may include acquisitions, divestitures, or a going-private or recapitalization transaction. We believe that actions resulting from the review could result in leverage increasing to more than 4x. The company's board of directors also declined an offer by P2 Capital Partners to acquire the company.

The ratings reflect our view of Epiq's financial risk profile, with leverage of 3.7x at June 30, 2014, and our view of its business risk profile, incorporating its modest share of the highly competitive, fragmented, and price-sensitive eDiscovery market as well as its cyclical but less competitive bankruptcy business. Partly offsetting the above factors, in our view, are Epiq's market expertise (which supports good relationships with law firms and corporate clients) and diverse customer base. For the full corporate credit rating rationale, see our report published May 5, 2014 on RatingsDirect.

We will monitor developments related to the strategic review and resolve the CreditWatch listing when more information regarding the outcome of the review becomes available. We could lower the rating if Epiq completes a transaction that results in sustained leverage above 4x. If actions determined by the strategic review do not hurt the company's financial risk profile, we will review our expectations for operating performance and Epiq's financial policy before resolving the CreditWatch listing.

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