S&P Global Ratings and Moody's affirmed their respective ratings on Iron Mountain Inc. following the company's agreement to acquire the U.S. operations of IO Data Centers LLC for approximately $1.3 billion.
S&P affirmed its ratings on Iron Mountain, including a BB- corporate credit rating, with a stable outlook.
The rating agency said the IO deal reflects a high-19x EBITDA multiple on Iron Mountain's estimated 2017 EBITDA, which S&P expects to result in its estimated pro forma 2017 leverage increasing by 0.25x to about 6x, "despite the meaningful equity funding component."
The stable outlook takes into account S&P's expectation for Iron Mountain's leverage to slide to 5.5x by 2018-end and to the low-5x area in subsequent years as the company continues to invest in its business, with revenues growing at a mid-single-digit percentage rate and adjusted EBITDA margins improving to the low-40% area in 2018.
Separately, Moody's affirmed Iron Mountain's Ba3 corporate family rating, Ba3-PD probability of default rating and SGL-3 speculative grade liquidity rating.
The rating agency also affirmed the Ba3 and B2 ratings for the company's existing senior and senior subordinated debt, respectively.
Moody's said in a note that although the IO deal will expand the footprint of Iron Mountain's data center services and lift its share of revenues from the high-growth and high-margin colocation services to approximately 5%, the company's total debt-to-EBITDA ratio will go up by roughly 0.2x to 5.9x, and CapEx will "increase significantly," as it is expected to expand data center capacity to benefit from the growth opportunity.
At the same time, the rating agency revised the ratings outlook on Iron Mountain to negative from stable, noting the company's elevated leverage, which Moody's expects to drop slowly but likely remain near the mid-5x range in 2019.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.
