S&P Upgrades System1 to 'CCC+' After Debt Restructuring

S&P Global Ratings has upgraded System1 Inc.'s credit rating to 'CCC+' from 'D' following the successful completion of a comprehensive debt restructuring. The ratings agency said the move reflects the company's improved financial standing after exchanging its previous credit facilities for a new package of cash, preferred stock, and a new term loan.

Details of the Restructuring

The transaction addresses System1's previous debt load by replacing its revolving credit facility and term loan. As part of the deal, a subsidiary, S1 Holdings Finco LLC, issued a new $150 million senior secured term loan due in 2031.

S&P assigned a 'CCC+' issue-level rating to this new debt, along with a '3' recovery rating. A '3' recovery rating typically indicates that lenders can expect a meaningful recovery of principal, estimated at 50% to 70%, in the event of a payment default.

Improved Financial Profile

The restructuring significantly enhances System1's financial metrics, according to S&P's analysis. The deal is expected to provide immediate relief and improve the company's ability to generate cash.

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Key improvements include:

• Reduced Leverage: S&P's adjusted gross leverage is now forecast to be about 9x in 2026, a notable improvement from the previous expectation of well over 10x.
• Lower Interest Costs: Annual interest expense is projected to drop to approximately $15 million from around $28 million.
• Positive Cash Flow: The reduced interest burden is expected to help System1 return to positive free cash flow generation.

Outlook and Lingering Headwinds

S&P has assigned a stable outlook to the new rating, anticipating that System1 will have adequate liquidity to meet its needs over the next few years. The agency estimates the company had about $20 million in cash after the transaction and will generate roughly $10 million in free cash flow in the second half of 2026, approaching $15 million in 2027.

Despite the upgrade, S&P noted that System1 continues to face significant business challenges. The company's revenue and EBITDA have declined in recent years due to lower advertising prices and reduced business from its partnership with Google, which accounts for 67% of its revenue. These pressures, combined with macroeconomic uncertainty, pose an ongoing risk to the company's financial recovery.