Global eXchange Services (GXS), a business-to-business e-commerce company being purchased by Francisco Partners from General Electric, has a limited track record both operating as an independent company and sustaining profitability improvement following its recent cost restructuring actions, according to Standard & Poor's analyst Emile Courtney. As a result, the agency has rated its proposed $210 million credit facility and $235 million of senior subordinated notes BB- and B, respectively. Moody's Investors Service, meanwhile, points out that GXS will have to exist without the benefits of GE's brand identity and advertising. Moody's therefore has assigned a Ba3 rating to the bank debt and a B2 rating to the notes.
The loan, comprising a $175 million "B" piece and a $35 million revolver, is led by Credit Suisse First Boston, while GE Capital has purchased the bonds as a form of seller financing (LMW, 9/23). The interest rate on the notes assumes a 12% coupon, but according to Moody's this is subject to a one-time adjustment on the first anniversary of the closing. At that time, the rate will be permanently set, and it could be as low as 8% or as high as 17%. A spokesman for Francisco declined to comment on the financing of the deal.
GXS has restructured to concentrate on the electronic data interchange (EDI) business, and the expectation is that "variability in profitability should ease going forward," Courtney said. Going forward, EDI usage is anticipated to grow due to the increasing number of transactions and documents processed, as well as the addition of new trading partners. "GXS shares 60% of the EDI market with two other top players, [IBM and Sterling Commerce], and there are moderate barriers to entry," he said. Additionally, alternative technologies and protocols such as XML are not expected to have a major impact for established providers for at least several years, if at all.