Investing.com -- Fitch Ratings has revised the outlook on Vistra Holdings Limited’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from Stable to Negative, while affirming the IDR at ’B+’. The ratings agency has also affirmed the ratings of Vistra’s $1,382 million and €835 million senior first-lien secured Term Loan B (TLB), issued by Thevelia (US) LLC and Thevelia Finance, S.a.r.l., respectively, at ’BB-’ with a Recovery Rating of ’RR3’. Both companies are completely owned by Vistra.

The revision to a Negative Outlook is due to a slower than anticipated deleveraging pace, with EBITDA net leverage likely to remain above Fitch’s negative sensitivity of 5.5x until 2026. Vistra’s EBITDA performance in 2024 was below Fitch’s expectations, largely due to investment in new commercial initiatives, which hampered short-term profitability. Additionally, bolt-on acquisitions increased net debt by end-2024.

The rating affirmation is a reflection of Vistra’s stable business profile, which includes steady revenue growth from a diverse customer base, a solid record of merger synergy execution, high profitability, and an enhanced platform of service offerings.

Fitch expects Vistra’s EBITDA net leverage in 2024 to be similar to the 2023 pro forma level of 6.9x, and could remain above 6.0x in 2025. The agency also estimates Vistra’s EBITDA margin remained strong at 34% in 2024, and could improve towards 37% by 2026, driven by full realization of cost synergies and economies of scale. This could allow EBITDA net leverage to fall under 5.5x by end-2026.

Vistra spent $85 million on bolt-on acquisitions in the first nine months of 2024, exceeding Fitch’s estimate of $30 million for the full year. Higher acquisition spending, coupled with weaker EBITDA, resulted in negative free cash flow in 2024. Fitch expects Vistra to make more bolt-on acquisitions in 2025-2026 with a focus on accretive business opportunities. However, Vistra’s already narrow rating headroom could diminish if M&A cash outflows exceed rating case assumptions.

Fitch forecasts Vistra’s EBITDA interest coverage to be above 2x in 2025 following several rounds of repricing on its original and incremental TLBs in 2024, reducing spreads and resulting in annual savings of $28.5 million. Further interest rate reductions were completed in February 2025, which are expected to save an additional $8 million annually.

Fitch expects Vistra to benefit from a defensive business model with resilient demand and a high degree of recurring revenue through economic cycles. The agency estimates 10%-11% revenue growth for fund solutions in 2024-2026, and 4%-5% growth for corporate solutions, benefiting from commercial initiatives and incremental revenue contribution from new acquisitions.

Fitch believes that the enlarged Vistra has a strengthened market position following the merger with Tricor Group, completed in July 2023. This merger created a market-leading platform with enlarged geographical and service coverage beyond Tricor’s specialization in Asia.

Vistra had $115 million in available cash at end-September 2024, sufficient to buffer operational needs. In addition, Vistra has a total of $350 million in revolving credit facilities that provide additional liquidity. All of Vistra’s first-lien term loans will mature in 2029, while the second-lien term loan will mature in 2032.

Vistra, renamed from Thevelia in 2024, is an investment vehicle set up by BPEA EQT (ST: EQTAB ) to acquire and hold Tricor and Vistra Group. The combined operations provide business, trust, investor and other services to corporates and funds.

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