S&P Affirms Ratings on Unisys Corp. (UIS); Sees Continuing to Seek Financing Amid Restructuring Plans

Standard & Poor's Ratings Services said it affirmed its 'B+' corporate credit rating on Unisys Corp. (NYSE: UIS). The outlook is negative.

At the same time, we lowered the issue-level rating on the firm's existing $210 million of senior unsecured notes to 'B+' from 'BB', and revised the recovery rating on the notes to '4' from '1'. The '4' recovery rating indicates our expectation for average (30%-50%; lower end of the range) recovery in the event of payment default.

"Our affirmation of the corporate credit rating reflects our expectation that the firm will continue to need to seek external financing to fund announced restructuring plans," said Standard & Poor's credit analyst James Thomas.

We believe that weak cash flow generation and the high level of upfront cash required to achieve expense reduction goals in its European operations will cause the firm to issue debt in some form over the next six months, and that leverage will broadly remain in line with our prior expectations.

Our rating on Unisys incorporates its "weak" business risk profile, reflecting our view of the company's second-tier position in the global information technology (IT) services market, the highly competitive conditions in the IT services industry, and the volatile earnings from the firm's technology hardware business. Unisys's significant base of contractually recurring service revenues partly offsets these factors. Our "aggressive" financial risk profile assessment of Unisys reflects our expectations that the company's EBITDA interest coverage will exceed 3x in the coming year and that it will be challenging for the firm to reduce its debt to EBITDA to less than 5x during the next 24 months despite its plans for expense reductions.

We base our negative outlook on Unisys on our expectation that it will be challenging for the company to generate free cash flow as a result of high restructuring charges and weakened margins in a highly competitive IT services environment.

We would consider a downgrade if Unisys is unable to make headway in its cost reduction plans as a result of regulatory or other challenges and if free cash flow turns persistently negative.

We would consider revising the outlook to stable if Unisys is able to demonstrate progress in reducing operating expenses and assumes a trajectory to raise its adjusted free cash flow to debt ratio over 5%.

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