Moody's Investors Service has given CSG Systems' $400 million secured bank loan a Ba2 rating as the agency has positive expectations for CSG's ability to turnaround newly acquired, Kenan Systems. Richard Baldwin, analyst at Moody's, said the company is planning a big commitment to Kenan which was the billing software division of Lucent Technologies. Baldwin explained that the company has lost 80% of its value since it was acquired by Lucent in 1999. "It remains to be seen if Kenan has been so damaged that it can't be turned around," said Baldwin, adding, "If it's possible, the management of CSG can do it." Calls to officials at CSG were not returned by press time.
The Moody's rating is also indicative of CSG's position relative to other industry players. Competitors of larger size that have investment-grade ratings and better leverage ratios are a challenge for CSG. "In order for CSG to improve its rating it will have to approach some of its higher rated competitors as far as their debt protection measures and size," said Baldwin. In addition, its reliance on AT&T Broadband for a considerable amount of revenue, puts CSG in a vulnerable position. However, in terms of its strong customer base, Baldwin finds security in the nature of service CSG provides. He said that once a company has a billing system installed it is unlikely to risk a change, especially since CSG's software is the result of extensive research and development. Historically the company builds on strong cash flow, which Moody's expects will be ample to cover interest and principle payments even if it was to encounter problems.
The current rating is the first for CSG, and covers the loan comprised of a $100 million five-year revolver, $125 million five-year term loan "A" and a $175 million six-year term loan "B."