Electronic logging device and Internet of Things provider Orbcomm and its parent saw their debt ratings affirmed by Moody’s, but they remain deep in speculative territory.
Orbcomm’s parent, GI DI Orion Acquisition, which acquired then publicly traded Orbcomm in April 2021 for approximately $1.1 billion, saw its corporate family rating affirmed at Caa1 and Caa1-PD for the probability of default. GI DI Orion Acquisition is the entity that private equity firm GI Partners established to acquire Orbcomm.
The action by Moody’s is technically a reaffirmation of the debt rating of the parent and then a reassignment of those ratings to Orbcomm. Moody’s said the financial statements are supplied to it by Orbcomm, which led to the reassignment to the subsidiary.
Long way from investment-grade debt
Caa1 is seven notches under the dividing line between speculative and investment-grade debt. It is four notches above where Moody’s (NYSE: MCO) would assess a C rating or below for a company that is in default.
Moody’s has had a Caa1 rating on Orbcomm for approximately a year. In April 2024, Orbcomm saw its rating drop one notch after it had spent about 10 months with a negative outlook.
At the time Moody’s cut the rating from B3 to Caa1, it also pegged the company’s outlook as stable. It retains that stable rating in the latest affirmation.
In its commentary on the affirmation, Moody’s said the Caa1 rating at Orbcomm is “constrained by weak credit metrics and in particular debt/EBITDA that has remained above 10X due to the company’s limited ability to convert strong order wins into revenue as well as pressure on EBITDA from higher costs.”
A 10X ratio of debt to earnings before interest, taxes, depreciation and amortization would be considered high by most metrics. For example, in a recent ratings affirmation of J.B. Hunt (NASDAQ: JBHT), Moody’s said the debt-to-EBITDA rating at the trucking and intermodal company was 1X.
Company’s revenue disclosed
While the ratings agencies do not generally disclose profit and loss information on a privately held company, they often note financial data that gives a picture of how the company is doing beyond debt coverage measures such as debt to EBITDA.
For example, Moody’s reported that Orbcomm revenue last year was approximately $310 million. In 2020, the last year Orbcomm was publicly traded, it reported revenue of $248.5 million. But it also lost 28 cents per share in that final year as a publicly traded company.
Moody’s listed other “constraints” to the company’s ratings as well. That $310 million in revenue was described by the ratings agency as making the company “small scale as a provider of industrial Internet of Things solutions that allow assets to be tracked, monitored and controlled remotely.”
Another constraint is “increased competitive risks as several peers and new entrants are adding satellite capacity in order to pursue opportunities in the company’s target markets.”
There were positives in the report as well. It said Orbcomm has a “good market [position] because its offerings are embedded in customers’ processes and are complemented with competitive pricing.” Moody’s also cited “positive long term growth prospects” because of the number of assets in its markets that have not been connected; “good customer diversification”; and the private owner, GI Partners, that “has been supportive with liquidity injections.”
Orbcomm has a B- rating from S&P Global Ratings (NYSE: SPGI). That rating has been in effect since December 2022. A B- rating from S&P Global is generally considered one notch above Orbcomm’s Caa1 rating.
At the time the agency handed down that rating, S&P also gave Orbcomm a negative outlook. S&P has not reported any changes in its view of Orbcomm since then.
An email to a representative from Orbcomm had not been responded to by publication time.
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