S&P Affirms NCO Group Rating, Gives Negative Outlook for Performance

Ratings agency Standard & Poor’s said yesterday that it has reaffirmed its credit rating of NCO Group’s debt issues after placing the company on a ratings watch following the announcement of its takeover of Outsourcing Solutions, Inc. (OSI). S&P also classified the outlook for NCO as “negative” based on market forces in the collection industry.

S&P said that it was affirming its B+ rating on NCO debt, a rating at the upper range for companies whose “financial situation varies noticeably.” S&P has rated NCO debt B+ since 2006 but placed the rating on credit watch on Dec. 12, 2007, the day NCO announced they were buying OSI (“NCO Group to Buy OSI for $325 Million,” Dec. 12, 2007). S&P places companies’ ratings on credit watch when there is a good chance the rating will be moved up or down following major events. 

The ratings S&P places on company debt, such as bonds, can impact the value of the debt as the company issues it for sale to institutional and individual investors.

S&P also changed the outlook on NCO’s performance to “negative” in its latest update. "The outlook revision reflects our belief that the tougher collection environment and the depreciating U.S. dollar may continue to negatively affect NCO’s results in 2008 and beyond," said Standard & Poor’s credit analyst Rian Pressman in a press release. S&P noted that if these or other circumstances cause NCO to underperform further, the rating will be lowered. If circumstances stabilize, the outlook will be changed to stable.

Despite the new outlook, S&P analysts are bullish on NCO’s acquisition of OSI. “This revised outlook does not reflect upon our generally positive opinion of NCO’s pending acquisition of OSI,” S&P said in the release. S&P noted that the deal will significantly expand “NCO’s ARM business, where it is already the market leader.” S&P also feels that integration risks involved with the acquisition will be relatively low.