• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Rating Action:

Moody's Rates HGI Holding's Proposed LBO Financing

Global Credit Research - 08 Sep 2010

Approximately $515 Million of Long-Term Rated Debt Facilities Affected

New York, September 08, 2010 -- Moody's Investors Service assigned a B2 corporate family rating and B2 probability-of-default rating to CDRL MS, Inc., a new entity formed by affiliates of Clayton, Dublier & Rice LLC and GS Capital Partners (collectively referred to as "the sponsors"), that will merge into Harrington Group, Inc. ("Harrington" a holding company that indirectly owns the current rated entity Harrington Holdings, Inc.) at transaction closing. The merged entity will be renamed HGI Holding, Inc. ("HGI") at that time. Moody's also assigned a B1 rating to CDRL MS, Inc.'s proposed $50 million senior secured revolving credit facility due 2015 and $315 million senior secured term loan due 2016. Moody's also assigned a Caa1 rating to the company's proposed $150 million senior unsecured loan due 2017. The ratings outlook is stable.

The following ratings were assigned:

CDRL MS, Inc.

Corporate family rating at B2;

Probability-of-default rating at B2;

$50 million senior secured revolving credit facility due 2015 at B1 (LGD3, 36%);

$315 million senior secured term loan due 2016 at B1 (LGD3, 36%);

$150 million senior unsecured loan due at 2017 at Caa1 (LGD5, 87%).

The following ratings were affirmed and will be withdrawn at transaction closing:

Harrington Holdings, Inc.

Corporate family rating at B2;

Probability-of-default rating at B2;

Senior secured revolving credit facility due 2013 at B1 (LGD3, 43%);

First lien senior secured term loan due 2014 at B1 (LGD3, 43%);

Second lien senior secured term loan due 2014 at Caa1 (LGD6, 90%).

RATINGS RATIONALE

Proceeds from the proposed debt securities combined with a $433 million common equity contribution from the sponsors will be used to fund the acquisition of Harrington and to repay existing debt for total consideration of approximately $898 million. The transaction is expected to close in late September.

HGI's B2 corporate family rating considers its high pro forma leverage and modest interest coverage, small scale, the large and highly fragmented nature of the medical supplies market, continued pressure on reimbursement rates, and longer-term acquisition risk. These concerns are mitigated by the company's national footprint, the annuity-like nature of many of its products, and favorable demographic trends. In Moody's opinion, the company's track-record of organic revenue/earnings growth and steady operating cash flow generation also support the rating.

The stable outlook reflects Moody's expectation that HGI will sustain organic revenue/earnings growth trends and apply excess cash flow to debt reduction such that credit metrics will improve from initial pro forma levels. The outlook also reflects Moody's expectation that the company will not pursue any material debt-financed acquisitions over the medium-term.

The ratings could experience positive pressure if the company continues to organically expand sales/earnings and improve credit metrics such that debt to EBITDA is reduced on a sustained basis below 4.5 times and EBITDA less capex coverage of interest expense is 2.5 times or higher.

The ratings could be pressured if competitive issues and/or reimbursement reductions result in reduced profitability such that HGI's debt to EBITDA is sustained above 6.5 times, EBITDA less capex coverage of interest expense falls below 1.5 times, or if free cash flow turns breakeven or negative. Additionally, debt financed acquisitions that raise leverage ratios or a weakening of the company's liquidity profile (such as lower than expected cushion under financial covenants) could also lead to ratings pressure.

The ratings are subject to the conclusion of the transactions, as proposed, and Moody's review of final documentation.

Moody's subscribers can find additional information in the HGI Credit Opinion published on Moodys.com.

The principal methodology used in rating CDRL MS, Inc. was Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA rating methodology published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Harrington Holdings, Inc., headquartered in Cleveland, Ohio, is a leading marketer and distributor of medical supplies and equipment in the US. The company is being acquired by affiliates of Clayton, Dublier & Rice LLC and GS Capital Partners.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Daniel Marx
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Rates HGI Holding's Proposed LBO Financing
No Related Data.

 

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