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Investing.com -- S&P Global Ratings has downgraded Compass Group (LON:CPG) Diversified Holdings LLC (CODI) to ’B-’ due to ongoing accounting issues. The ratings have also been placed on CreditWatch with negative implications. This follows a report that CODI’s fiscal 2024 financial statements are unreliable due to an internal investigation into its largest subsidiary, Lugano Holding Inc., where accounting irregularities were discovered.
The company has announced that these financial statements will be restated and the Q1 2025 Form 10-Q filing will be delayed. This has led to a revision of CODI’s management and governance score to ’negative’ from ’neutral’, and liquidity score to ’less than adequate’ from ’adequate’.
Lugano Holding Inc., which accounts for almost 38% of the EBITDA as of Dec. 31, 2024, is CODI’s largest investment. The credit rating agency has lowered the issuer credit rating on CODI from ’B+’ to ’B-’ and placed the ratings on CreditWatch, suggesting a heightened uncertainty and potential further downside risk to CODI’s creditworthiness due to the discovered irregularity.
In addition, the issue-level rating on the company’s senior secured facilities has been downgraded to ’B+’ from ’BB’ with a recovery rating of ’1’, indicating an expectation for high recovery (95%). The rating on senior unsecured notes has been lowered to ’B-’ from ’B+’ with a recovery rating of ’4’, which indicates average recovery expectations (30%) in a simulated default scenario.
On May 7, 2025, CODI disclosed accounting irregularities due to an ongoing internal investigation into Lugano Holding Inc., of which CODI owns approximately 60%. The Audit Committee concluded that the company’s consolidated financial statements as of Dec. 31, 2024, were not reliable due to the materiality of the preliminary Lugano investigation findings regarding off-balance sheet funding.
The Audit Committee and its advisors are 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. While a restatement for prior years may be necessary, the Audit Committee has not yet reached a conclusion.
In connection with the investigation, Moti Ferder, Lugano’s founder and CEO, has 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, the majority equity holder and sole lender to its portfolio companies, has breached certain affirmative covenants in its credit facilities and can no longer borrow to manage its working capital needs. The company’s portfolio consists entirely of small, privately held, low-speculative-grade investments with a ’B’ weighted average estimated credit quality.
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