S&P Lifts Outlook on On Assignment (ASGN) to Stable; Ratings Affirmed

S&P Global Ratings said that it revised its rating outlook on On Assignment Inc. (NYSE: ASGN) to stable from negative and affirmed its ratings on the company, including the 'BB' corporate credit rating.

"The outlook revision reflects our expectation that the company's adjusted debt leverage will decrease to the mid- to high-2x area over the next 12 months from 3x as of March 31, 2016, due to EBITDA growth and debt repayment," said S&P Global Ratings credit analyst Heidi Zhang. "The company has made solid progress in reducing its debt leverage: It repaid about $134 million of debt since its debt-financed acquisition of Creative Circle in June 2015, which increased its adjusted debt leverage to the high-3x area at the time of the acquisition." On Assignment's EBITDA growth over the last year was driven by the Creative Circle acquisition and its low-teens-percentage organic revenue growth, which outperformed its industry and our expectations. The company's revenue growth reflects improved sales productivity and headcount, which help the company capture new business from continued strong end-market demand and favorable secular trends for temporary staffing. We expect minimal share repurchases in 2016, given the company's publically stated intentions to reduce adjusted debt leverage to 2.5x by year-end 2016 before considering alternative uses of free cash flow.

The stable rating outlook on On Assignment reflects our expectation that the company will reduce its adjusted debt leverage to the mid- to high-2x range over the next 12 months through EBITDA growth and debt repayment, while maintaining adequate liquidity.

We could lower the rating if On Assignment's adjusted debt leverage remains above 3x due to more debt-financed acquisitions or share repurchases, or if revenue growth declines to a low-single-digit percentage rate.

Although less likely, we could raise the rating if the company profitably and meaningfully increases its scale through additional business lines or geographic expansion. We could also raise the rating if the company adopts a more conservative financial policy and reduces leverage to below 2x on a sustained basis, while preserving its EBITDA margin. The company's stated leverage target is 2.5x as of year-end 2016, which is higher than our threshold for an upgrade.

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