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Related Issuers
Rating Action:

Moody's downgrades Arctic Glacier's CFR to B3; rates new financing

Global Credit Research - 07 May 2013

Approximately $300 million of long-term bank debt rated

New York, May 07, 2013 -- Moody's Investors Service downgraded Arctic Glacier U.S.A., Inc.'s ("Arctic Glacier") corporate family rating ("CFR") to B3 from B2 and the probability of default rating to B3-PD from B2-PD. As part of this action, Moody's assigned B1 ratings to the company's proposed first lien senior secured bank facilities, consisting of a $40 million revolving credit facility due 2018 and a $260 million term loan due 2019. The ratings outlook is stable.

Arctic Glacier will primarily use proceeds from the proposed first lien bank debt and a $150 million second lien term loan (unrated) to refinance the existing term loan and mezzanine debt, and to fund a special dividend and acquisitions. The financing is expected to close in May 2013. The ratings are subject to review of final documentation.

The downgrade of the CFR to B3 from B2 reflects that the proposed transaction meaningfully increases leverage. Based on reported EBITDA, Moody's estimates that leverage increases about two-turns, to 8.0 times from 6.1 times for 2012 (without giving effect to the expected contribution from acquisitions and cost savings from actions already implemented). The downgrade also reflects aggressive financial policy given the magnitude of the proposed dividend, which represents half of the equity that was invested in the business as part of the LBO in 2012. The proposed transaction decreases financial flexibility and the ability to withstand the impact of unfavorable weather conditions on product volumes. Prior to the LBO, the predecessor company Arctic Glacier Income Fund filed for bankruptcy in both Canada and the U.S. In addition, the company is ramping up acquisitions, spending $30 million over the short-term with additional activity likely over the course of the year (exceeding the $10 million annually that we anticipated). Moody's expects that debt to EBITDA will decrease below 7.0 times over the next 12 to 18 months due to the realization of cost savings and contribution from acquisitions.

Notwithstanding these concerns, the financing improves the company's liquidity profile by expanding the revolving credit facility commitment to $40 million from $25 million (undrawn at closing), and by adding a springing financial maintenance covenant.

The following summarizes the ratings activity:

Ratings downgraded:

Corporate family rating to B3 from B2

Probability of default rating to B3-PD from B2-PD

Ratings assigned:

Proposed $40 million first lien senior secured revolving credit facility due 2018 at B1 (LGD3, 31%)

Proposed $260 million first lien senior secured term loan due 2019 at B1 (LGD3, 31%)

Ratings to be withdrawn at transaction closing:

$25 million senior secured revolver due 2017 at B1 (LGD3, 34%)

$189 million senior secured term loan due 2018 at B1 (LGD3, 34%)

RATINGS RATIONALE

Arctic Glacier's B3 CFR also reflects modest pro forma coverage given Moody's expectation that EBITDA less capex to interest will range from 1.3 to 1.4 times over the next 12 to 18 months, modest scale, exposure to weather and regional economic conditions, and increasing acquisition activity as it seeks to expand its presence in certain regions. The rating derives support from the company's business position as the second largest manufacturer and distributor of ice in the U.S. and first in the smaller Canadian market, one of the few players of scale in a highly fragmented industry, the relative diversity of the customer base, and the potential benefits associated with its cost reduction initiatives. The rating also derives support from Moody's view that the pro forma liquidity profile is good.

The stable outlook reflects Moody's expectation that Arctic Glacier will sustain volumes and execute on its cost reduction initiatives such that profitability levels improve.

The ratings could be downgraded if soft consumer spending, unfavorable weather conditions, or an increase in competitive activity leads to a contraction in pricing or product volumes, and/or cost savings fail to materialize such that debt to EBITDA remains above 7.0 times and/or EBITDA less capex to interest falls to 1.0 times. Only breakeven to negative annual free cash flow and/or a material weakening of the company's liquidity profile could also result in ratings pressure.

Moody's could upgrade Arctic Glacier's ratings to the extent it demonstrates sustained revenue and earnings growth and reduces debt through internal cash flow such that debt to EBITDA is sustained below 5.0 times and interest coverage (measured by EBITDA less capex to interest) exceeds 2.0 times.

The principal methodology used in this rating was the Global Packaged Goods published in December 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Arctic Glacier is a manufacturer, marketer, and distributor of packaged ice products in the U.S. and Canada. The company is privately owned by affiliates of H.I.G. Capital.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Daniel Marx
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Arctic Glacier's CFR to B3; rates new financing
No Related Data.

 

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