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S&P Global Ratings retained all of its ratings, including its ‘CCC+’ issuer credit rating on U.S.-based Advantage Sales & Marketing Inc. (ASM) and parent, Advantage Solutions Inc., on CreditWatch, but revised the implications to positive from developing. This indicates S&P could raise the rating if the merger agreement with Conyers Park II Acquisition Corp. is successfully completed. S&P placed the ratings on CreditWatch with developing implications April 8, 2020.

ASM has entered into a merger agreement with Conyers Park II Acquisition Corp., a publicly traded special purpose acquisition company. The transaction will include $450 million in previously raised equity capital by Conyers Park, a new $700 million common stock private placement, and up to $2.5 billion in new debt financing.

A large portion of transaction proceeds will be used to repay ASM’s debt and should meaningfully improve its credit measures.

“The revised CreditWatch implications to positive from developing reflects we could raise the ratings following our review,” S&P said.

The proposed transaction addresses ASM’s approaching debt maturities and will substantially strengthen credit metrics. S&P expects leverage could improve to the 5x area from above 7x for the 12 months ended June 30, 2020.

“Post transaction, we believe the existing financial sponsors will maintain well over 60% ownership interest. While we expect ASM will maintain lower leverage given its new status as a public company, we also believe it will maintain an appetite for acquisitions that could lead to credit metric deterioration,” S&P said.

“A clearer understanding of financial policies going forward will play a key role in the CreditWatch resolution,” the rating agency said.

Notwithstanding the expected credit metric improvement from debt reduction, coronavirus headwinds could hurt profitability and limit how much S&P raises the ratings. ASM’s store sampling and events marketing businesses were severely affected by lockdowns in the early stages of the pandemic, and S&P expects a slow return to pre-pandemic levels for these services. While the company has benefited from steady operating performance from most of its sales services businesses, this has only partly offset disruption in sampling and marketing services.

Importantly, this transaction refinances around $2.5 billion of first-lien term debt maturing in July 2021. Based on this large current debt maturity, S&P could lower the rating to ‘CCC’ if market conditions deteriorate and it no longer believes the company can complete the transaction.

S&P will resolve the CreditWatch after receipt of additional transaction details, further discussions with management regarding financial policies under new ownership, and updating its base-case forecast. Upon completion of its review, S&P could maintain the ratings or raise them.