Fitch affirms Convergys’ credit ratings on stable outlook

Fitch Ratings on Tuesday affirmed the status of short- and long-term debts of Convergys Corp. with a stable outlook.   The New York- and London-based credit rating agency gave Convergys a long-term issuer default rating of BBB-, and the same rating to the company’s revolving credit facility.   The Philippine-based business process outsourcing company’s junior subordinated convertible debentures received a BB+. Its short-term debt and commercial paper got an F3.   Approximately $425 million of debt is affected by Fitch's action, including Convergys' undrawn $300 million credit facility, according to the rating agency.   The stable outlook reflected strong liquidity and financial flexibility provided by a net cash position of $602 million, undrawn revolving credit worth $300 million, an accounts receivable securitization facility of $150 million, consistent free cash flow and no significant debt maturities until 2029 – currently at $125 million, Fitch noted.   At the same time, Fitch pointed out some credit concerns that centered on “the lack of revenue diversification as Convergys' customer base is highly concentrated by customer and industry” although this “is partially offset by multiple programs within each customer.”   Its customer base is highly concentrated by customer and industry. The three largest clients – AT&T (23.6 percent), DirecTV (12.4 percent), and Comcast (12.4 percent) – accounted for 48.4 percent of total revenue in the nine months to Sept. 30, compared with 41.7 percent and 46.8 percent in the corresponding year earlier period with and without the information management business, respectively.   “As a result, the communications industry accounted for nearly 61 percent of total revenue in this period. Fitch believes client concentration is partially offset by multiple programs within each customer.”   Another concern for Fitch was the “limited revenue growth outside of Convergys' top three clients.”   As of Sept. 30, 2012, Fitch found, total debt was $127.5 million, primarily consisting of $125 million of 5.75 percent junior subordinated convertible debentures due 2029 and $2.2 million of capital lease obligations.   The loss of any key customers and significant debt-financed acquisitions or share repurchases could trigger a negative rating action, the ratings firm said.  — VS, GMA News