S&P action and immediate findings
S&P Global Ratings downgraded Dye & Durham Corp. (TSX:DND) to 'CCC+' from 'B-' on Friday, pointing to an unsustainable capital structure after the company's adjusted leverage rose above 9.0x and its last-12-months EBITDA interest coverage dropped to 1.0x as of March 2026. The agency attached a negative outlook to the rating and reduced its issue-level assessment on the company's secured debt to 'CCC+' with a recovery rating of '3', which corresponds to an expected average recovery between 50% and 70% in a default scenario.
Leverage and coverage trends
S&P reported that Dye & Durham's adjusted leverage climbed to 9.5x in the third quarter ending March 2026, up from 8.3x in fiscal 2025 and materially above the agency's earlier projection of roughly 7x. The rating agency now projects the company will finish fiscal 2026 with leverage in the 9.5x to 10x range and expects a free operating cash flow deficit for the year. Over the same period, last-12-months EBITDA interest coverage slipped to 1.0x in March from 1.4x in fiscal 2025.
Liquidity and revolver usage
The company's cash balance fell to $35.6 million in the third quarter of 2026 from $57.6 million in the first quarter. At the end of the third quarter Dye & Durham had drawn $31.5 million on its revolver, leaving only $5 million of headroom before hitting a 35% utilization trigger. Crossing that utilization threshold would require the company to comply with a first lien covenant of 5.8x.
Revenue dynamics and customer behavior
Revenue declined by $27.8 million, or 9%, in the first three quarters excluding the Credas sale completed in January 2026. S&P singled out higher-than-anticipated churn following contract renewals in the second half of 2025 as a key factor, along with lower minimum spending commitments and reduced transaction volumes. Noncontracted transactional revenues, which make up roughly 45% of total revenue, remain exposed to continued softness in Canada and the U.K.
S&P's near-term expectations and downgrade triggers
S&P said Dye & Durham is increasingly dependent on either stronger earnings and cash flow in 2027 or proceeds from asset sales to bring down its debt load. The agency warned it could further downgrade the company within the next 12 months if a near-term default situation becomes likely - including a liquidity shortfall or a distressed debt exchange - driven by factors such as reduced real estate transactions, rising customer churn, or excessive restructuring costs.
Concluding note
The rating action reflects the rating agency's assessment that current operating and cash flow trends have left Dye & Durham with a stretched capital and liquidity profile. Absent stronger cash generation or significant deleveraging, the company faces the prospect of further rating pressure.