The possibility of further weakening in the markets that Global Imaging Systems serves is a source of concern for the office technology provider's credit quality, said Paul Aran, v.p. and senior analyst at Moody's Investors Service. Global's business could also be invaded by bigger companies that normally do not serve Global's middle-market niche, but are forced to shift focus, searching for profitability in a weaker economy, Aran explained. Larger competitors may step up efforts to gain market share through more aggressive pricing. Global offers a line of digital office imaging solutions including the sale and service of copiers, fax machines and printers, along with video conferencing and other electronic presentation systems.
Global is pitching a five-year, $100 million revolver and a six-year, $150 million "B" loan--both rated Ba3--as part of its plans to refinance debt and improve financial performance. Global is also planning to sell $50 million in convertible senior subordinated notes as part of the refinancing plans. The new credit is secured by all the assets and a pledge of stock from Global and subsidiaries. Proceeds from the facility and notes will be used to refinance $27 million on the company's existing revolver and $68 million on its existing "B" loan, along with $100 million of subordinated debt. Less than $5 million is expected to be tapped on the revolver at closing.
The credit rating further reflects risks related to Global's acquisition strategy. "They acquire small companies and try to keep management in place," Aran said, speaking to the company's acquisitive style. The company has grown with 58 acquisitions throughout the U.S., in which it focuses on small transactions where it can reduce leverage and fund the purchases with internally generated cash, Moody's says. But Global's past success does not guarantee future success with acquisitions, Moody's warns. The Tampa, Fla.-based company does have a strong balance sheet and financial coverage ratios, Aran noted. Pro forma EBITDA coverage of interest is estimated to be about five times, Moody's says, while debt-to-EBITDA is expected to be 2.3 times. Moody's also notes Global's strong revenue growth and interest savings as a result of the refinancing plans. Raymond Schilling, senior v.p., cfo, treasurer and secretary of Global, did not return calls for comment.
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