• 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 upgrades CDW's CFR to B2, senior secured debt to B1; outlook stable

Global Credit Research - 02 Apr 2012

Approximately $3.9 billion of debt affected

New York, April 02, 2012 -- Moody's Investors Service upgraded the ratings on CDW Corporation's ("CDW") Corporate Family (CFR) and Probability of Default (PDR) to B2 from B3, secured debt to B1 from B2, senior notes to B3 from Caa1, and subordinated notes to Caa1 from Caa2. Moody's also affirmed the Speculative Grade Liquidity Rating at SGL-2. The rating outlook is stable.

RATINGS RATIONALE

The upgrade of CDW's CFR to B2 reflects the company's improved operating and financial performance, as well as our expectation for further reduction in financial leverage. Over the next 12 to 18 months, we believe CDW will reduce leverage to the range of 5x to 5.5x total adjusted debt to EBITDA (currently 6x versus 10.9x at year end 2007 immediately after the LBO). Since 2007, CDW has expanded EBITDA by about 60% to $698 million (Moody's adjusted as of fiscal year ended December 2011) and repaid roughly $750 million of the $4.6 billion gross LBO debt.

In addition to our expectation of lower financial leverage, the upgrade recognizes CDW's solid execution of its business strategy. By focusing on a broad selection of IT products, leveraging its salesforce and technology specialists, enhancing its vertical solutions offerings to facilitate a more favorable product mix and expanding its IT services capabilities, CDW has been able to penetrate further into its existing customer base, win new accounts and organically grow faster than the IT market. This has produced share gains, operating margin expansion and greater profitability without significant capital investment. Productivity improvements, a highly variable cost structure and better working capital management have resulted in steady free cash flow generation, which we expect to continue.

These positives are offset by CDW's still high financial leverage, though expected to be consistent with other B2 rated companies, thin (albeit improving) interest coverage ratios, significant vendor concentration, and a business that is highly correlated to macro-economic and IT industry cycles. Further, CDW has meaningful exposure to small and medium-sized businesses, which tend to be more cautious on capital spending during episodes of sluggish or negative economic growth, as well as the government sector, which can delay purchases during periods of budget uncertainties or gridlock in government policy-making.

CDW's SGL-2 Speculative Grade Liquidity Rating reflects its good liquidity supported by roughly $680 million of availability under its $900 million senior secured ABL revolving credit facility, lack of near-term debt maturities and expectation of about $200 million of free cash flow generation. CDW has relatively stable operating margins (though low, similar to other IT distributors), low capital intensity, and seasonal working capital needs. This, combined with the focus on continual improvement in working capital supports the notion of reliable generation of positive free cash flow which counterbalances our expectation for modest cash balances ($100 million as of December 2011).

The stable rating outlook reflects CDW's relatively consistent revenue stream from the public sector (around 40% of revenue), which counteracts greater fluctuations in corporate sector revenue, as well as our expectation for continued execution of its business strategy, stable vendor/customer relationships and market share gains.

Ratings could be upgraded if CDW's revenue and operating margins improve to a higher sustainable range (operating margins in mid to upper single digits) implying increased market share, continued favorable shift in product mix and/or a lower cost structure. An upgrade could also occur if total adjusted debt to EBITDA was expected to be sustained below 4.5x. Ratings could be downgraded if loss of customers/market share or pricing pressures due to increasing competition or a weak economic environment led to margin erosion and impaired interest coverage, reduced free cash flow generation and leverage sustained above 7x total adjusted debt to EBITDA.

..Rating Actions:

Corporate Family Rating to B2 from B3

Probability of Default Rating to B2 from B3

$421 Million Senior Secured Term Loan B due October 2014 to B1 (LGD-3, 36%) from B2 (LGD-3, 35%)

$918 Million Senior Secured Extended Term Loan due July 2017 to B1 (LGD-3, 36%) from B2 (LGD-3, 35%)

$500 Million Senior 8.0% Secured Notes due December 2018 to B1 (LGD-3, 36%) from B2 (LGD-3, 35%)

$1.305 Billion 8.5% Senior Notes due April 2019 to B3 (LGD-4, 62%) from Caa1 (LGD-4, 60%)

$722 Million 12.535% Senior Subordinated Notes due October 2017 to Caa1 (LGD-6, 93%) from Caa2 (LGD-6, 93%)

..Rating Affirmed:

Speculative Grade Liquidity Rating -- SGL-2

Moody's subscribers can find additional information in the CDW Credit Opinion published on http://www.moodys.com.

The principal methodology used in this rating was the Global Distribution and Supply Chain Services Rating Methodology published in November 2011. Please see the Credit Policy page on http://www.moodys.com for a copy of this methodology.

With headquarters in Vernon Hills, IL, CDW is a leading direct marketer and value-added reseller (VAR) of multi-branded information technology (IT) products and value-added services in the U.S. and Canada. The company is owned by Madison Dearborn Partners, LLC and Providence Equity Partners Inc.

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.

Gregory A. Fraser
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 upgrades CDW's CFR to B2, senior secured debt to B1; outlook stable
No Related Data.

 

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