Moody's Affirms Kroll's Corporate Family Rating, Highlights Concerns Over High Debt Leverage

Strategic Insights -

Kroll Midco Corporation, a global consulting and business services firm, has seen its corporate family rating (CFR) affirmed by Moody's Investors Service at B3, with a probability of default rating (PDR) at B3-PD. Additionally, the rating agency has affirmed Deerfield Dakota Holding, LLC's senior secured first-lien bank credit facilities at B2 and senior secured second-lien term loan at Caa2, with a negative outlook for both companies. This decision reflects Moody's concerns over Kroll's high debt leverage, which is expected to remain above 8.0x for the twelve months ending March 31, 2025, and its weak liquidity profile. Edmond DeForest, Moody's Ratings Senior Vice President, stated that the company's high debt-funded M&A activity since 2020 has led to very high financial leverage and that the company's governance risks reflect its aggressive financial policies.

Key Takeaways:

  • Moody's has affirmed Kroll's CFR at B3, with a PDR at B3-PD, and affirmed Deerfield Dakota Holding, LLC's senior secured first-lien bank credit facilities at B2 and senior secured second-lien term loan at Caa2.
  • Kroll's high debt leverage is expected to remain above 8.0x for the twelve months ending March 31, 2025, making it difficult to obtain revolving credit and term loan maturity extensions without some reduction in financial leverage.
  • The company's governance risks reflect its aggressive financial policies, including a tolerance for very high debt leverage and the potential for debt-financed acquisitions and shareholder returns.
  • The senior secured first-lien bank credit facilities are rated B2, reflecting their senior-most position ahead of and first-loss support provided by the senior secured second-lien term loan.
  • Kroll's liquidity profile is weak, with about $69 million of cash and $37 million of available capacity under its $196.45 million revolving credit facility as of March 31, 2025.
  • The company's revenue growth is expected to be low, single-digit percentage range, with slowly improving profit rates and debt/EBITDA remaining above 8.0x until after 2025.
  • A ratings upgrade is not considered likely in the near term, but could occur over time if the company demonstrates commitment to more balanced financial policies and shows a reduction in debt/EBITDA below 6.0x and an EBITA/interest ratio above 2.0x.

Statistics:

  • Debt/EBITDA ratio: above 8.0x for the twelve months ending March 31, 2025
  • Interest coverage: around 1x
  • Revenue growth: low, single-digit percentage range
  • Profit margins: pressured by investments in cost reduction initiatives until the end of 2025
  • Cash and cash equivalents: about $69 million as of March 31, 2025
  • Available capacity under revolving credit facility: $37 million as of March 31, 2025
  • Term loan principal payments: about $28 million annually

Sources:

  • Moody's Investors Service, "Moody's affirms Kroll Midco Corporation's (B3) CFR and Deerfield Dakota Holding, LLC's (B2 and Caa2) credit facilities," dated March 2025
  • Moody's Investors Service, "Business and Consumer Services," published in November 2021 and available at https://ratings.moodys.com/rmc-documents/356424.