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07 Jan 2003
Approximately $175 Million of Debt Securities Affected.
New York, January 07, 2003 -- Moody's Investors Service assigned a B2 rating to Remington Arms Company,
Inc.'s ("Remington") proposed $175 million senior unsecured
notes and confirmed the company's existing ratings. The notes will
be used to repay existing indebtedness and fund a special dividend to
Remington's parent. The rating action reflects the additional leverage
and change in ownership indicated by this and auxiliary proposed transactions,
as well as Remington's consistently strong generation of operating cash
flows. The ratings outlook is stable.
The following ratings were affected by this action:
$175 million senior unsecured notes due 2011, assigned at
Senior Implied, confirmed at B1;
Senior Unsecured Issuer Rating, confirmed at B2.
Proceeds from the proposed $175 million senior unsecured notes,
along with $65 million in borrowings under a new asset-based
bank credit facility, $30 million in holding company ("RACI")
equity issuance, and $31 million in holding company notes,
will be used to fund transaction fees of $10 million, repay
Remington's $87 million 9.5% senior subordinated
notes and $43 million in bank lines and to repurchase $161
million of current shareholders' equity interest at Remington's holding
company level (i.e. from the tender of shares from affiliates
of Clayton, Dubilier & Rice ("CDR") and management).
The proposed share repurchase will be effected by a $100 million
cash dividend from Remington (virtually all existing shareholder equity),
$30 million in cash from new RACI equity issuance and $31
million in current-pay notes to be issued by RACI. The new
$30 million equity contribution will come from affiliates of Bruckmann,
Rosser, Sherrill & Co. ("BRS"), which will own
at least 48% and most likely a majority of RACI following the transactions.
CDR's ownership position will become no more than 49% from 87.1%
and will likely be lower, with the balance held by management and
directors. The ratings are subject to a review of all final documentation.
Moody's does not rate Remington's current or proposed bank credit facilities,
and will withdraw its B3 rating on Remington's $87 million 9.5%
senior subordinated notes due 2003 upon their repayment.
Remington's ratings are restrained by its pro forma high leverage and
moderate free cash flow relative to debt and by its participation in a
highly competitive and mature industry which is subject to political/regulatory
shifts, land development issues and discretionary spending trends
as well as contingent product and environmental liabilities. Additional
risks include the company's varying and material working capital needs
due to the seasonal nature of the business and its practice of extended
dating terms and the meaningful degree of sales and profit concentration
from certain customers and products.
Remington's ratings are supported by leading market positions (#1
or #2 in all core markets) and well-known brands, as
developed over the company's 186-year history. The ratings
reflect Remington's stable operating cash flows which benefit from management's
focus on operating efficiency, cost control and product development
as well as Remington's stable market share position in almost all categories
and the generally stable market aggregates for its industry(ies) overall.
In this regard, sales for Remington from 1997 to LTM 09-30-02
have averaged $390 million (within a range of -1.8%
and +4.1%) and EBITDA has averaged approximately $64
million, (ranging from $52 to $74 million for this
same period). Further, from 1997 to LTM 09-30-02,
EBITDA leverage has gone from 3.8x to 2.2x and EBITA interest
coverage has gone from 1.7x to 4.1x (inclusive of a $79
million in cash dividends & special payments made by the company in
2000 & 2002).
The stable ratings outlook reflects Moody's expectation that Remington
will maintain current operating performance levels and its dominant brand
positions. Moody's recognizes Remington's improved LTM sales and
profitability, as well as its historical pattern of deleveraging,
but notes that debt reduction and financial flexibility may be constrained
by the increased debt service requirements resulting from the proposed
transaction, as well as by likely dividends to RACI to meet interest
payments on the new RACI notes. Moody's expects near-to-intermediate
term retained cash flows (EBITDA less capex, interest and taxes)
will be approximately $15 million, or 6% of pro-forma
debt, that debt-to-EBITDA will be around 3.9x
(4.9x on an EBITA basis), and that EBITDA-to-interest
will be 2.6x (2.1x on an EBITA basis). Consideration
of working capital swings and RACI debt could further limit these measures.
Moody's notes that dividends to RACI are governed by bank covenants and
senior note indenture provisions (e.g., 50%
of net income and interest coverage of 2.25x and additional borrowing
capacity of $1.00).
The established track record of BRS and CDR's remaining interest and control
provisions support the expectation that Remington will continue to demonstrate
disciplined operating and financial policies. Moody's ratings will
be sensitive to changes in Remington's market position, cash flow
and liquidity profiles, capital structure, ownership composition,
and corporate governance.
The B2 rating on the proposed Remington senior notes reflects the benefits
of domestic subsidiary guarantees, as well as the notes' senior
ranking in the capital structure to subordinated indebtedness of the company
and guarantors. The rating also incorporates the notes' effectively
subordinated position to a potentially large amount of senior secured
indebtedness, which may include a $125 million credit facility
and up to $25 million in other permitted indebtedness. In
addition, the indenture is expected to contain customary covenants
including restrictions on indebtedness, dividends and stock repurchases,
liens, investments, affiliate transactions, and asset
Remington Arms Company, Inc., with executive offices
in Madison, North Carolina, designs, manufactures,
and markets rifles, shotguns, ammunition, and hunting
and gun care accessories under the Remington name and fishing products
under the Stren name. The company's products are sold through independent
dealers, Wal-Mart and sporting goods retailers. Remington
was purchased from Dupont in 1993 by affiliates of Clayton, Dubilier
& Rice and management. Sales for the twelve-month period
ended September 2002 were approximately $406 million.
Andris G. Kalnins
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MOODY'S ASSIGNS B2 TO REMINGTON ARMS' PROPOSED SENIOR NOTES
Russell S. Gorman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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