$ 3.8 billion of rated debt
New York, August 08, 2012 -- Moody's Investors Service assigned a B3 rating to The ServiceMaster
Company's (ServiceMaster) proposed senior unsecured guaranteed notes.
All other ratings, including the Caa1 rating on the un-guaranteed
senior unsecured notes, B2 Corporate Family Rating and Probability
of Default ratings, the B1 rating on the secured debt and the SGL-2
Speculative Grade Liquidity Rating were affirmed. The ratings outlook
remains stable.
Rating assigned (LGD assessments):
Senior guaranteed notes due 2020, B3 (LGD5, 73%)
Ratings affirmed (LGD assessments revised):
$1.1 billion 10.75%/11.50% guaranteed
toggle notes due 2015, B3 (LGD 5, 73%)
$600 million 8% senior guaranteed notes due 2020,
B3(LGD5, 73%)
Senior Secured Bank Credit Facility, B1 (LGD3, 34%)
$79 million senior unsecured notes due 2018, Caa1 (LGD 6,
95%)
$195 million senior unsecured notes due 2027, Caa1 (LGD 6,
95%)
$83 million senior unsecured notes due 2038, Caa1 (LGD 6,
95%)
Corporate Family Rating, B2
Probability of Default Rating, B2
Speculative Grade Liquidity Rating, SGL-2
RATING RATIONALE
ServiceMaster's B2 Corporate Family Rating reflects high financial leverage,
with debt to EBITDA expected to fall to around 6 times over the coming
year and interest coverage less than 2.0 times, which are
weak metrics compared to other companies at the B2 rating level.
We expect some improvement by 2013, with increasing customer service
focus and further efficiency gains, better price realization,
growth in commercial accounts and product line extensions in the home
warranty business. While adjusted EBITDA should grow by a mid single
digit rate to around $730 million given these expectations,
risks remain that new account growth will remain weak as ServiceMaster
business units are highly exposed to the US economy. Nonetheless,
the ratings are supported by solid market positions and scale in key business
segments and a record of steady revenue and EBITDA growth over the last
two years (excluding LandCare).
The B3 rating on senior guaranteed notes (Notes) reflects the subordinated
position of the Notes relative to the secured debt in priority of claim
of obligations, as well as the seniority of the Notes relative to
unguaranteed unsecured debt which rank below the Notes.
The stable rating outlook reflects our expectation for mid-single
digit EBITDA growth and improving financial strength metrics in the next
12-18 months. The ratings could be downgraded if ServiceMaster
fails to make steady progress reducing debt to EBITDA to under 6.0
times. The ratings could be upgraded if ServiceMaster demonstrates
steady revenue and profitability growth and improves credit metrics such
that Debt to EBITDA and free cash flow to debt are sustained at less than
5 times and above 5%, respectively. Based on a potential
pro-forma debt structure after which ServiceMaster reduces the
amount of secured debt relative to the unsecured debt, the expected
loss given default of the secured debt would be reduced which could result
in a higher rating for the secured debt.
The principal methodology used in rating ServiceMaster was the Global
Business & Consumer Service Industry Methodology published in October
2010. 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.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Edmond DeForest
Vice President - Senior 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
Robert Jankowitz
Associate Managing Director
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 rates ServiceMaster's new senior unsecured notes at B3; B2 CFR affirmed
