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Related Issuers
Rating Action:

Moody's upgrades RBS Global's CFR to B2, stable outlook

Global Credit Research - 19 Jun 2012

Approximately $2.1 billion of rated debt affected

New York, June 19, 2012 -- Moody's Investors Service upgraded RBS Global, Inc.'s ("RBS") corporate family and probability of default ratings to B2 from B3, the senior secured credit facilities to Ba2 from Ba3, the senior unsecured notes to B3 from Caa1 and the speculative grade liquidity rating to SGL-1 from SGL-2. RBS is a wholly-owned subsidiary of Rexnord Corporation. The rating outlook is stable.

Upgrades:

..Issuer: RBS Global, Inc.

.... Probability of Default Rating, Upgraded to B2 from B3

.... Corporate Family Rating, Upgraded to B2 from B3

....Senior Secured Bank Credit Facility due Mar 15, 2017, Upgraded to Ba2 LGD2, 19 % from Ba3 LGD2, 16 %

....Senior Secured Bank Credit Facility due Apr 1, 2018, Upgraded to Ba2 LGD2, 19 % from Ba3 LGD2, 16 %

....Senior Unsecured Regular Bond/Debenture due Sep 1, 2016, Upgraded to B3 LGD5, 75 % from Caa1 LGD4, 68 %

....Senior Unsecured Regular Bond/Debenture due May 1, 2018, Upgraded to B3 LGD5, 75 % from Caa1 LGD4, 68 %

.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

RATINGS RATIONALE

The upgrade of the corporate family rating to B2 from B3 primarily reflects improved financial leverage as a result of the initial public offering (IPO) by Rexnord Corporation, and the use of proceeds to redeem $300 million of subordinated co-issued by its operating subsidiaries RBS and Rexnord LLC. Pro forma for the IPO and debt repayment, Debt to EBITDA (reflecting Moody's adjustments) was approximately 6.2 times at the end of fiscal year 2012.

The B2 CFR reflects still high financial leverage after the IPO, as well as economic uncertainties in Europe, which accounts for approximately 17% of the company's fiscal 2012 revenue. Furthermore, the company's water business is driven primarily by construction, new home starts and municipality expansions which are all expected to remain weak in the near term. Nonetheless, the ratings are supported by the company's proven ability to generate positive free cash flow, very good liquidity, expectation for additional deleveraging due primarily to the anticipated performance for its process and motion control segment, and a good debt maturity profile.

The upgrade of the speculative grade liquidity rating to SGL-1 from SGL-2 reflects a very good liquidity profile supported by over $400 million in cash balances (immediately after the close of the IPO and after related debt repayments) and about $220 million available on the $265 million revolver. Moody's expects good headroom under its financial covenants over the next year.

The stable outlook reflects Moody's expectation for mid-single digit revenue growth and relatively stable margins over the next year. Debt to EBITDA should improve to about 5.5 times in fiscal 2013.

The ratings could be upgraded if the company substantially improves financial strength metrics through sustained operating income growth or further debt repayments from operating cash flow or equity offerings. Quantitatively, sustained debt to EBITDA below 4.0 times, free cash flow to debt above 8.0% and EBIT to interest above 2.0 times would support positive ratings action.

A significant decline in revenue and operating margin or a large debt financed acquisition that leads to weakening credit metrics could pressure the ratings. Quantitatively, if Debt to EBITDA is expected to be sustained at over 6.0 times the rating, the ratings could be downgraded.

The principal methodology used in rating RBS was the Global Manufacturing Industry Methodology published in December 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.

Rexnord Corporation, headquartered in Milwaukee, WI, is the indirect parent of RBS Global, Inc. (RBS). RBS is an industrial company comprised of two business segments: Process and Motion Control (about 65% of revenues) and water management (about 35% of revenues). Revenues for the twelve months ended March 31, 2012 totaled approximately $2.0 billion. Apollo Management, L.P. ("Apollo") through its affiliates, is the majority owner of RBS.

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.

Paul Aran
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

Michael J. Mulvaney
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 upgrades RBS Global's CFR to B2, stable outlook
No Related Data.

 

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