Compass Group Diversified Holdings LLC Downgraded To 'B-' On Accounting Issues; Ratings Placed On CreditWatch Negative
- Compass Group Diversified Holdings LLC (CODI) reported that its fiscal 2024 financial statements are unreliable due to an ongoing internal investigation concerning its largest subsidiary, Lugano Holding Inc., where irregularities were discovered. These statements will be restated, and CODI will delay its Q1 2025 Form 10-Q filing.
- We revised CODI's management and governance score to 'negative' from 'neutral' and liquidity score to 'less than adequate' from 'adequate'.
- Lugano is CODI's largest investment with almost 38% of the EBITDA as of Dec. 31, 2024.
- We lowered our issuer credit rating on CODI to 'B-' from 'B+' and placing the ratings on CreditWatch with negative implications. We also lowered our issue-level rating on the company's senior secured facilities to 'B+' from 'BB' with a recovery rating of '1', indicating our expectation for high recovery (95%), and on senior unsecured notes to 'B-' from 'B+' with a recovery rating of '4', indicating average recovery expectations (30%) in a simulated default scenario.
- The CreditWatch placement indicates that there is heightened uncertainty and potential further downside risk to CODI's creditworthiness due to this irregularity.
TORONTO (S&P Global Ratings) May 13, 2025—S&P Global Ratings took rating action mentioned above. CODI recently disclosed accounting irregularities due to an ongoing internal investigation into its subsidiary, Lugano Holding Inc. (CODI owns approximately 60%). The Audit Committee concluded on May 7, 2025, that the company's consolidated financial statements as of Dec. 31, 2024, and other information were not reliable due to materiality of the preliminary Lugano investigation findings regarding the off-balance sheet funding. CODI also announced that it will delay filing its first quarter 2025 results.
The Audit Committee and its advisors are actively working to complete the investigation as soon as possible. The company expects material findings and will file restated financial statements for the fiscal year ending Dec. 31, 2024. Although a restatement for prior years may be necessary, the Audit Committee has not yet reached a conclusion.
In connection with the ongoing investigation, Lugano's founder and CEO, Moti Ferder, stepped down from all positions and directorships within Lugano, its subsidiaries, and affiliates. Josh Gaynor has been appointed as an interim CEO to assume all of Mr. Ferder's previous responsibilities.
CODI is the majority equity holder and sole lender to its portfolio companies. The company's portfolio consists entirely of small, niche, privately held, low-speculative-grade investments ('B' weighted average estimated credit quality). The company has breached certain affirmative covenants in its credit facilities and no longer borrow to manage its working capital needs.
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| Primary Credit Analyst: | Dinesh Nemade, Toronto; dinesh.nemade@spglobal.com |
| Secondary Contact: | Elizabeth A Campbell, New York + 1 (212) 438 2415; elizabeth.campbell@spglobal.com |
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