S&P Downgrades Advantage Solutions Rating Due to Uncertain Outlook of the Exchange Offer

Investing.com – S&P Global Ratings has downgraded Advantage Solutions Inc. and placed its rating on a negative credit watch, following the company’s announcement of a exchange offer.

This credit rating action reflects uncertainty regarding the announced transaction’s success and implementation. The exchange offer initiated by Advantage Solutions received support from 56% of outstanding debt holders, including 54% of term loan lenders and 59% of bondholders, but the transaction requires a minimum participation rate of 99%, which may be modified.

The proposed exchange involves $1.1 billion of term loans maturing in October 2027 and $595 million of senior secured notes maturing in November 2028. Debt holders will receive 92.6% of new super-priority debt (maturing in 2030) and 7.4% in cash. Early participants will receive a 2.25% physical payment support premium.

The new term loans will bear a SOFR plus 6% spread, 175 basis points higher than the current rate. The new notes will have a coupon rate of 9%, 250 basis points above the current rate. The amortization of the term loans will increase from $13 million to $26 million.

Lenders who do not agree will be subordinated within the capital structure, and noteholders will lose existing collateral and guarantees. The company plans to use existing cash to fund $125 million of prepayments and transaction costs.

S&P stated that if the vast majority of lenders agree to the transaction, as they maintain their position on collateral, it will not be considered a distressed exchange. However, if many lenders reject the offer, S&P may view it as a selective default.

The downgrade also reflects industry challenges impacting Advantage Solutions. The company’s higher-margin brands and retail services segments face headwinds in 2025, including client budget constraints, service insourcing, repricing, and increased competition. S&P estimates that revenue will decline by 2% in 2025 compared to 2024, with adjusted EBITDA decreasing by about 6%, and expects these trends to continue into 2026.

The company’s experience division has performed well, showing strong results due to increased activity levels and growing demand from existing clients. The restructuring initiated at the end of 2023 is nearing completion, and reduced restructuring costs are expected to partially offset industry headwinds in 2026.

If the transaction is completed as proposed, leverage will be moderately reduced. Assuming full participation before the early bid deadline, total debt would decrease by approximately $90 million. S&P estimates that the company’s adjusted leverage ratio at the end of 2025 will be around 6.3x, improving to about 6.1x in 2026. However, due to rising interest rates, annual interest expenses will increase by $25-30 million, reducing the interest coverage ratio from 1.9x in 2025 to approximately 1.6x in 2026.

S&P stated that once there is clearer support from lenders and progress on the transaction, the credit watch will be resolved.

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