S&P downgrades CPI Card

S&P said it lowered the corporate credit rating on CPI Card Group Inc. to B from B+.

The outlook is negative.

The agency also said it lowered the rating on the company's senior secured credit facility, which consists of a $435 million senior secured term loan due 2022 and a $40 million revolver bank loan due 2020, to B from BB-.

S&P also said it revised the recovery rating to 3 from 2. The 3 recovery rating indicates 50% to 70% expected default recovery.

CPI Acquisition Inc., a wholly owned subsidiary of CPI Card, is the borrower of the debt, the agency said.

The downgrades reflect soft demand for CPI's standard embedded microprocessor payment cards (chip cards) in 2016, S&P said, and the company's expectation that demand will remain muted in 2017.

As a result of this lower demand, the agency said it revised the company’s operating performance expectations downward and now expects that CPI's leverage will increase to the 5.5x range in 2016 from 3.4x in 2015 and remain elevated in the 5x-range or higher through 2017, the agency said.

The ratings also consider the company’s narrow product focus and limited geographic diversity, which is partially offset by the company's leading position in the U.S. credit, debit and prepaid financial payment card markets, S&P said.

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