Investing.com -- Moody’s Ratings has downgraded the corporate family rating of Vistra Holdings Limited to B2 from B1. The downgrade also extends to the existing $1.382 billion senior secured first-lien term loans due 2029, borrowed by Thevelia (US) LLC, and the euro-denominated senior secured first-lien term loans due 2029, co-borrowed by Thevelia (US) LLC and Thevelia Finance, Sarl.

The rating agency has concurrently revised the outlook for Vistra from negative to stable. The downgrade is a reflection of the expectation that Vistra’s financial leverage will remain high through 2025-26 due to slower-than-expected improvement in its earnings. This slow recovery is primarily due to slowing economic growth and uncertainties from evolving global tariff policies, which are likely to delay corporate investment decisions and capital market activities, according to Stephanie Lau, a Vice President and Senior Credit Officer at Moody’s Ratings.

The agency projects Vistra’s adjusted EBITDA to grow by 5%-6% annually to $429 million in 2025 and $452 million in 2026, up from $383 million in 2024, without major acquisitions. These growth rates, which include synergies, are slower than previously anticipated due to challenging business conditions, slowing GDP growth, and evolving global trade policies.

The agency now projects Vistra’s adjusted debt/EBITDA to show a more gradual improvement, declining to 6.2x in 2025 and further to 5.8x in 2026, from 6.8x in 2024. Its adjusted EBITA/interest is expected to improve to around 1.8x in 2025 and further to 2.1x in 2026, from 1.4x in 2024. These ratios align with the B2 rating category.

The B2 ratings continue to reflect Vistra’s strong presence in the fund and corporate services sector globally, particularly in Asia, its high recurring revenue, strong profitability, ability to generate positive free cash flow, and very good liquidity profile. These strengths are counterbalanced by Vistra’s high financial leverage, exposure to event risks related to potential debt-funded acquisitions as a private equity-owned company, and its private company status.

Vistra’s liquidity is very good, supported by aggregate cash holdings of around $171 million, a $350 million undrawn revolving credit facility, an ability to generate annual free cash flow of around $95 million -$140 million, and no debt maturity until 2029 except for debt amortization of 1% per year on its USD and HKD first-lien term loan.

The stable outlook reflects Moody’s expectation that Vistra will gradually deleverage in the next 12-18 months from the high level in 2024, maintain very good liquidity, and pursue mergers and acquisitions at a measured growth pace.

The ratings could be upgraded if Vistra grows its earnings and generates free cash flow on a sustained basis while managing its expansion appetite prudently. On the other hand, the ratings could be downgraded if Vistra’s revenue, earnings and profitability stall or decline, the company engages in aggressive debt-funded expansions, or its liquidity deteriorates significantly.

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