OREANDA-NEWS. S&P Global Ratings said today it revised the rating outlook on DynCorp International Inc. to stable from positive. At the same time, we affirmed our ratings, including the 'CCC+' corporate credit rating, on the company.

The outlook revision reflects our belief that the recent loss of the INL-Air Wing contract will make it more difficult for DI to achieve our expectations of revenue and earnings growth over the next few years, reducing the likelihood of an upgrade. On Sept. 1, 2016, the company was notified by the State Dept. that the new INL-Air Wing contract, which could be worth up to $10 billion over the up to 11-year contract term, was being awarded to a competitor, AAR Corp. INL-Air Wing is a major contract for DI and although the current contract expires in October 2016, the company is negotiating with the State Dept. for an extension through October 2017.

"The stable rating outlook reflects the improved liquidity following the recent refinancing and expectations of fairly stable revenues and higher margins over the next 12 months," said S&P Global Ratings credit analyst Christopher Denicolo. "We expect credit ratios to remain weak in 2016, with debt to EBITDA of 8.5x-9.5x, but to improve with higher earnings as less profitable contracts end and are replaced with new business. However, there is some uncertainty around our forecast because it depends on new business wins, which may be difficult in the very competitive government services market."

We could raise the rating if DI is ultimately able to retain the INL-Air Wing contract, win new business, improve margins, and reduce debt such that debt to EBITDA declines below 8x and we no longer believe the company's leverage is unsustainable.

We could lower the rating if the company is not winning new business as expected, resulting in liquidity deteriorating significantly.