(Bloomberg) -- S&P Global Ratings cut its credit grade on Solera further into junk, as the Vista Equity Partners-backed software company struggles with a high debt load and negative cash flow.
S&P downgraded Solera’s ratings to CCC+ from B-, or seven steps into non-investment grade status, according to a Monday statement. The ratings firm said it expects the company, which provides software services to the automotive industry, will not be cash flow positive for the 2025 fiscal year ending on March 31.
The Westlake, Texas-based company has enough liquidity to keep operating over the next 12 months, but its long-term capital structure could become unsustainable, according to S&P. Solera had about $8.25 billion of long-term debt as of Sept. 30, according to financial filings.
“While liquidity is currently sufficient, Solera will need to considerably improve its cash generation after debt servicing to no longer rely on its revolver,” S&P said in its statement. The company has a $500 million credit revolver due next year, though Solera is likely to extend the facility, according to S&P.
Vista led a group of investors in taking Solera private in 2016, a deal that valued Solera at about $6.5 billion, according to a statement at the time. In 2021, Vista looked to take Solera public through a merger with a special purpose acquisition company, but talks were halted.
Last year, Solera filed confidentially for an initial public offering, according to statements and regulatory filings.
Solera’s $3.4 billion term loan B was quoted at 96 cents on the dollar on Monday afternoon New York time, down from about 99.4 cents on March 10, according to data compiled by Bloomberg. Some of Solera’s debt also has a payment-in-kind component, which allows the company to defer paying some of its cash interest, according to the S&P statement.
S&P said it could upgrade Solera’s credit rating if the company improves revenue growth, gains market share or improves its Fleet Solutions business, a unit that provides video safety and drive monitoring tools for drivers and automotive fleet managers across the US.
