STG Group Inc filed for bankruptcy on April 19, 2018, after a period of uncertainty dating back to late 2016 when it struggled to make debt repayments. The company's FHR at default was 22, High Risk, based on the most recent financial data, so this distress was predicted.
FHR at default: 22, High Risk
STG provides 'mission-critical technology, cyber, and data solutions to more than 50 US Federal Agencies', so we should all hope they maintain operations through the transition and reorganization.
In November 2017 a group of creditors took over a subsidiary after it failed to meet covenant requirements. STG Group had $152 million in revenues for the 12 months ending 6/30/2017.
What the ratings tell you
STG was consistently rated in the Medium Risk category, with FHRs between 40 and 50 for several years (2013 to 2016), before deteriorating fairly sharply to High Risk. With an FHR of 22 based on the June 30, 2017 financial data, the company's Estimated Probability of Default (EPD) was 8.5%.
When a company enters High Risk it is a clear signal to mitigate financial exposures and develop business contingency plans.
Where our analysis tells the story.
Each of our reports shows STG with poor Core Health (31) and weakness across all its resilience indicators (Leverage, Liquidy and Earnings Performance). This combination of Core Health and Resilience places the company in Quadrant C, requiring urgent attention.
The Financial Dialogue clearly states that companies in "Quadrant C should be able to discuss their plan to deliver significant improvement/relief in some or all of the areas discussed in this report within a reasonable time frame". It then provides 5 suggested items of discussion, with scripted suggestions.
The Peer Benchmark Report also flagged clear and significant issues. Table 2 of the report shows STG underperforms the sector average in most areas, most significantly:
- Cash Ratio (0.02 vs 0.49)
- Current Ratio (0.36 vs 1.58)
- Total Debt to Assets (0.62 vs 0.11)
- Interest Coverage (-7.1x vs +2.3x)
The FHR Report, Peer Benchmark Report and Financial Dialogue are available for download from the client portal.