S&P Downgrades Outerwall (OUTR) to 'BB-' Following Recent Quarterly Results

Standard & Poor's Ratings Services lowered its corporate credit rating on Outerwall Inc. (Nasdaq: OUTR) to 'BB-' from 'BB+'. The outlook is negative.

At the same time, we lowered our issue-level ratings on the first-lien facilities, including the $600 million revolving credit facility due 2019 and $150 million term loan due 2019, to 'BB' from 'BBB'. The recovery rating of '2' (revised from '1') indicates our expectation for lenders to receive substantial (70% to 90%, at the low end of the range) recovery in the event of payment default.

We also lowered our issue-level ratings on the company's $350 million unsecured notes due 2019 and $300 million unsecured notes due 2021 to 'B' from 'BB-'. Our recovery rating for each tranche of the unsecured notes is unchanged at '6', which indicates our expectation for investors to receive negligible (0% to 10%) recovery in the event of payment default.

"The lower ratings reflect our assessment that Redbox, the company's largest operating segment, is in a secular decline and facing stronger than anticipated competitive pressure from online streaming services and on-demand services from cable and satellite providers; therefore, we have revised downward our forecast for profits and cash flow, and believe credit metrics will worsen," said Standard & Poor's credit analyst Suyun Qu.

The negative outlook reflects our expectation that the decline in the DVD rental segment will lead to lower revenue and cash flow. Over the next year, we expect the company to maintain credit metrics near current levels, including debt-to-EBITDA in the mid-2x area.

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