Standard & Poor's Corp. downgraded the privately held merchant credit card processor iPayment Inc. to the brink of highly speculative territory Friday.

The rating agency voiced concerns about iPayment's debt covenants and said the processor's revenue is falling as a result of its exposure to retail sales.

Even if iPayment were to direct a substantial portion of its discretionary cash flow to debt reduction this year, establishing adequate protection under the covenants may be challenging, given the current weak economic environment, S&P said.

In the first quarter, iPayment's revenue slid 8.3% from a year earlier, to $170.1 million.

S&P lowered its corporate credit rating for iPayment by one notch, to B-minus, or six notches into junk territory. The rating company also said that further downgrades for iPayment are not out of the question.

Since 2003, iPayment has bought a dozen competitors or merchant portfolios. The processor currently has more than 145,000 clients, mostly small U.S. merchants, and it markets its offerings through independent sales organizations.

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