Investing.com -- Moody’s Ratings has upgraded the credit ratings of Priority Holdings, LLC (Priority), including its Corporate Family Rating (CFR) from B2 to B1. Other ratings that saw an upgrade include its Probability of Default Rating (PDR) and its Senior Secured First Lien Bank Credit Facilities ratings, both of which moved to B1 from B2. The outlook for Priority remains stable and its Speculative Grade Liquidity Rating (SGL) is unchanged at SGL-1.

The upgrade comes as a result of Priority’s steady revenue growth and improved cash flow generation capabilities, following the redemption of preferred equity in 2024. Moody’s also cites the expected ongoing deleveraging due to earnings growth and debt paydown as a factor for the upgrade.

The stable outlook is based on Moody’s expectation of robust revenue growth in 2025, along with a modest expansion in margins and increased free cash flow generation.

Priority has shown strong growth in all its three segments: SMB merchant acquiring, B2B payments, and Enterprise. Particularly, the Enterprise business, which largely consists of payment processing services for customers of debt resolution platforms, has seen significant growth. The company’s credit profile is also supported by good cash flow generation relative to debt levels, with free flow to debt expected to approximate 8% in FY 2025, despite relatively high interest costs.

However, Priority continues to maintain high financial leverage, which was about 4.8x at December 31, 2024. Moody’s expects this to decline to about 4.2x at FY 2025. Furthermore, the company faces stiff competition in the merchant acquiring and payment processing space, where price competition and technological innovation can impact results. The company’s strategy also includes mergers and acquisitions, which could present integration costs and potentially slow down the deleveraging trajectory.

Governance considerations for Priority include high debt leverage, a concentrated ownership structure with majority ownership by the founder and his family, and the potential for debt-funded acquisitions.

Priority’s liquidity is supported by an unrestricted cash balance of $59 million as of December 31, 2024. Projected free cash flow of about $65 million in 2025 and an undrawn $70 million revolving credit facility expiring in 2029 also support the company’s liquidity. The revolving credit facility is subject to a total net leverage covenant of 6.9x applicable when utilization exceeds 35%, stepping down to 6.4x by the end of 2025. Priority is in compliance with the covenant with a meaningful cushion. The maturity for the $950 million term loan is 2031.

The ratings could be upgraded if the company achieves consistent revenue and EBITDA growth, debt-to-EBITDA (Moody’s adjusted) sustained below 4x, free-cash-flow-to-debt at or above 10%, and a balanced financial policy. Conversely, the ratings could be downgraded if there are revenue or margin declines, debt-to-EBITDA (Moody’s-adjusted) sustained above 5x, a deterioration of liquidity and/or cash flow generation, and/or expectation of a more aggressive financial policy.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.