S&P Lifts Outlook on MDC Partners (MDCA) to Positive; Ratings Affirmed

Standard & Poor's Ratings Services said that it revised its rating outlook on MDC Partners Inc. (Nasdaq: MDCA) to positive from stable and affirmed the 'B+' corporate credit rating on the company.

At the same time, we affirmed our 'B+' issue-level rating on the company's senior unsecured notes. The '4' recovery rating remains unchanged, indicating our expectation for average recovery (30%-50%; upper half of the range) of principal in the event of a payment default.

The positive rating outlook reflects MDC Partners' strong fourth-quarter 2015 results. The company's organic growth rate of 7.1% and total revenue growth of 8.4% are above our forecasts of 6.0% and 6.5%, respectively. Additionally, adjusted EBITDA grew 2.4% and adjusted margins were 16.5% in 2015. As a result, we now expect adjusted leverage to decline to about 5x--our threshold for an upgrade of the company--by the end of 2016.

"The 'B+' corporate credit rating is based on our assessment of the company's business risk profile as fair and its financial risk profile as highly leveraged," said Standard & Poor's credit analyst Dylan Singh. The business risk profile assessment reflects MDC Partners' healthy business prospects, greater scale, and improved margins, in our view, which are on par with those of its much larger ad agency peers. The company has consistently reported organic revenue growth rates above those of its ad agency peers since 2007, and we expect this trend to continue.

"The positive rating outlook reflects our expectation that MDC Partners' operating performance will remain strong, improving the likelihood that adjusted leverage could decline to below 5x by the end of 2016," said Mr. Singh.

We could raise our corporate credit rating on the company if its adjusted leverage continues to improve to the low-5x range, with a clear path to it declining below 5x. This could occur if revenue and EBITDA grow about 7.3% and 12%, respectively, in 2016, with no significant increase in debt.

We could revise the outlook to stable if we no longer expect the company's adjusted leverage to decline to below 5x during the next 12 months. This could occur if MDC Partners' revenue and EBITDA growth are lower than we expect, or if the company makes a sizable debt financed acquisition or distribution to shareholders.

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