Dawn Acquisitions cut by S&P Global Ratings to CCC on weak liquidity

Dawn Acquisitions LLC, doing business as Evoque Data Center Solutions, was downgraded on Feb. 26 by S&P Global Ratings to CCC, from B-, retaining its negative outlook, on concern that the company may run low on liquidity within the next year. The issue-level rating on the company's secured debt was reduced as well, to B-, from B+.

S&P Global Ratings said it expects "Dawn's liquidity will be pressured over the next twelve months." Ratings believes EBITDA will decline 15%-25% in 2021 and the company will run $55 million-$65 million negative free operating cash flow in the next year. The rating agency noted that at Sept. 20, 2020, Dawn had roughly $20 million of cash on its balance sheet.

Ratings said Dawn has access to an undrawn $50 million revolver. But it added that given its estimate of Dawn's leverage being in the range of 11x-12x over the next year, the company might run up against the revolving loan's springing maximum net first-lien leverage covenant of "8.0x (on a bank basis) when the outstanding balance reaches 35% utilization," limiting the cash that can be borrowed.

Ratings said that, "absent external support from owner Brookfield Infrastructure Partners L.P. we believe there is a high likelihood the company will exhaust its internal liquidity sources over the course of the next year." The agency also said that it believes Dawn's capital structure is "unsustainable," and that the company "could engage in a distressed restructuring over the next year."

Dallas-based Dawn Acquisitions, spun out from AT&T, is a full-service colocation provider with a portfolio of 31 owned and leased data-center facilities in 25 domestic and international markets.