S&P Lifts Outlook on Booz Allen Hamilton (BAH) to Positive

S&P Global Ratings said it affirmed its 'BB' corporate credit rating on Booz Allen Hamilton Inc. (NYSE: BAH) and revised the outlook to positive from stable.

We also assigned our 'BB' issue-level rating and '3' recovery rating to the company's secured first-lien debt, which consists of a $500 million revolver, a $1.04 billion term loan A, and a $541 million term loan B. The '3' recovery rating indicates our expectation for meaningful (50% to 70%; higher half of the range) recovery of principal in the event of default.

"Over the last several years, BAH has operated with leverage around 3x, while managing declining revenue and considerable dividend disbursements," said S&P Global Ratings credit analyst Peter Bourdon. "Our outlook revision to positive reflects our view that it will continue to operate at that level which is supported by the company's recent backlog growth and forecast for revenue growth, a reduced Carlyle equity ownership stake, and an established market position as a government service provider," he added.

After three years of annual revenue declines, BAH reported 2.5% growth in fiscal 2016, with EBITDA margins remaining in the 11% to 12% range and free cash flow to debt of 12%. Growth in the company's backlog was supported primarily by an increase in the value of priced options and also by an increase in the unfunded backlog.

The positive outlook reflects the company's solid operating performance that results in our expectation for leverage to remain in the 3x area, if not lower, while still supporting shareholder returns.

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