Investing.com -- S&P Global Ratings has downgraded Innovate Corp.’s long-term issuer credit rating to ’CCC-’ from ’ CCC (WA: CCCP )’ due to weak liquidity. The negative outlook indicates that Innovate Corp.’s liquidity is expected to be under stress over the next six months. The company’s ability to make interest payments on its corporate-level debt may be pressured due to this liquidity issue.
S&P Global Ratings views Innovate’s capital structure as unsustainable and anticipates that the company will largely depend on favorable business, financial, and economic conditions to meet its financial commitments in the near term. The issue rating on Innovate’s senior notes due 2026 has also been lowered to ’CCC’ from ’CCC+’. However, the recovery rating on the notes remains ’2’, indicating an expectation for a meaningful 75% recovery in the event of a default.
As of March 31, 2025, Innovate had corporate-level cash and equivalents of $3 million and was fully drawn on its $20 million line of credit. The company’s next interest payment is due within six months, and there is a concern that Innovate may have difficulty making the $35.8 million in interest payments on its corporate-level debt in the next six months. Despite receiving cash flows from dividend payments and tax share agreements from its subsidiary DBM Global Inc. (DBM), the liquidity issues persist.
Innovate had a total principal debt outstanding of $672 million as of March 31, 2025. This includes various debts due between August 2025 and May 2030. The majority of Innovate’s portfolio value is its 91% controlling interest in DBM, which is the only portfolio company expected to make distributions to Innovate in the near term.
Innovate’s portfolio only contains unlisted companies, which S&P Global Ratings views as an underlying weakness for an investment holding company. While Innovate’s management team is exploring opportunities to monetize non-cash-flowing assets to address the company’s capital structure, the concentration in unlisted assets could limit its ability to monetize them to repay debt or generate additional liquidity on short notice.
The company’s loan-to-value ratio (based on book values) exceeded 200% as of March 31, 2025. Potential paths to lowering leverage include asset divestures and external capital raises.
The ratings could be lowered further if a default event is imminent, such as insufficient liquidity to fund interest payments. The outlook could be revised to stable if Innovate’s liquidity improves and a default transaction is no longer expected over the near term.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.