S&P Global Ratings raised its issuer rating for System1 Inc. to 'CCC+' from 'D' after the company completed a restructuring of its debt obligations. As part of the deal, System1 exchanged its revolving credit facility and prior term loan for a package that included cash, preferred stock and a newly issued term loan. On the same day, S&P assigned a 'CCC+' issue-level rating and a '3' recovery rating to a $150 million senior secured term loan due in 2031, issued by the subsidiary S1 Holdings Finco LLC.
The ratings firm said the transaction lowers S&P-adjusted gross leverage to about 9x in 2026, down from an earlier expectation of well over 10x. S&P also projects a drop in annual interest expense to roughly $15 million from about $28 million under the prior capital structure. That reduction in finance costs is a central reason S&P expects the company to move back to positive free cash flow generation.
System1 has faced falling revenue and EBITDA in recent years. S&P attributes those declines to lower pricing for advertising inventory and ongoing decreases in revenue tied to the company's Google partnership, which accounted for 67% of revenue. Those operating headwinds were compounded by macroeconomic uncertainty and elevated restructuring costs.
At the close of the transaction, S&P estimates System1 held about $20 million in cash on hand. The ratings agency projects the company will generate approximately $10 million of free cash flow in the second half of 2026 and will approach $15 million of reported free operating cash flow in 2027. S&P characterized that level of reported free operating cash flow as adequate given the company's minimal mandatory amortization and capital expenditure requirements.
S&P set a stable outlook, citing its expectation that System1 will maintain sufficient liquidity to meet needs over the coming years. The firm expects leverage to run near 9x in 2026 and about 8x in 2027. However, S&P also noted that ongoing business headwinds could pose a risk to further improvement in free operating cash flow.
Context and implications
The debt exchange reduces near-term cash interest obligations by roughly $13 million annually, a meaningful decline in financing burden that S&P views as enabling a path back to positive free cash flow. At the same time, the company's revenue base has contracted, with a large portion of sales concentrated in a single partnership that accounted for 67% of revenue, keeping operational risk elevated despite the capital structure relief.
Overall, S&P's upgrade reflects improved credit metrics on paper after the restructuring, tempered by continued operating challenges that could limit further credit improvement if market conditions or advertising demand do not stabilize.