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13 Sep 2004
MOODY'S ASSIGNS B3 RATING TO COLEMAN CABLE'S $110 MILLION SENIOR UNSECURED NOTE ISSUE; ASSIGNS SGL-3 RATING
Approximately $110 Million of Debt Securities Affected.
New York, September 13, 2004 -- Moody's Investors Service has assigned initial ratings to Coleman Cable,
Inc. (Coleman Cable) including a B3 rating to the company's $110
million senior unsecured note issue. At the same time, the
rating agency assigned a B2 senior implied rating, a B3 issuer rating
and a SGL-3 (speculative grade liquidity) rating. The ratings
reflect Coleman Cable's broad product portfolio, diverse customer
base and flexible and cost efficient operating model that has resulted
in a stable track record of earnings and solid margin performance.
The rating actions also anticipate the continuation of the company's ability
to pass on rising copper prices through periodic price increases.
Challenges and concerns encompassed by the ratings include a relatively
small revenue base in relation to peers, modest free cash flow generation,
limited liquidity and relatively high initial leverage. The outlook
Coleman Cable, a manufacturer of specialty wire and cable,
operates as both an operating and holding company for domestic and international
subsidiaries. Revenues for the latest twelve months ended June
30, 2004 totaled $257 million with EBITDA of $27 million.
Markets served include irrigation, HVAC, electrical,
security/home automation and retail and automotive. Coleman Cable
has historically focused on niche markets where its wide array of products
rank in the top three of many industry channels. The company offers
more than 26,500 SKUs to over 8,500 active customers including
Wal Mart and John Deere. Concentration to one customer is not a
significant concern as the top twenty customers account for less than
40% of total sales, however a major retailer does comprise
almost 6% of that total. To date, the company has
been able to pass on rising raw material costs, thereby allowing
it to maintain solid margins for the wire and cable industry. In
addition, the company has effectively sourced internationally and
consolidated manufacturing facilities which have further bouyed returns.
The $110 million notes have a maturity of eight years, are
non-callable for four years and will benefit from the guarantees
of domestic subsidiaries. Net proceeds from the notes, augmented
by borrowings under a new senior secured bank revolving credit facility
(not rated by Moody's) will be used to refinance existing indebtedness
and fund a $10.5 million distribution to shareholders.
The notes will be sold in a privately negotiated transaction without registration
under the Securities Act of 1933 (the "Act") under circumstances reasonably
designed to preclude a distribution thereof in violation of the Act.
The issuance has been designed to permit resale under Rule 144A.
Certain covenants will apply to the notes including a debt incurrence
test based on fixed charge coverage of at least 2x as well as standard
language regarding change in control, asset sales and sale and leaseback
Ratings assigned with a stable outlook:
Coleman Cable -- B2 senior implied rating; B3 issuer
rating; B3 senior unsecured rating and a SGL-3 rating.
Upon close of the proposed notes and senior secured credit facility,
Coleman Cable's leverage will be relatively high. The $110
million notes will comprise the bulk of the company's debt structure with
borrowings under the $75 million revolving credit facility fluctuating
depending on asset balances. Availability under the revolver will
be governed by a borrowing base calculation. Estimated availability
based on June 30, 2004 balances is approximately $26 million.
Pro forma fiscal year-end 2004 debt-to-EBITDA will
be just over 5x with balance sheet debt-to-capitalization
in the mid-90% range. Moody's notes that leverage
measures should show steady improvement beyond 2004 as free cash flow
generation gains momentum. Pro forma EBIT measures are expected
to remain solid, covering cash interest expense by over 2x and generating
a return on assets in excess of 12% in 2004 and approaching 2.5x
and 13%, respectively, in 2005. Free cash flow
is expected to recover in the second half of 2004, resulting in
near breakeven free cash flow and debt paydown for the year. Beyond
2004, free cash flow should range in the mid-to-high
single digits as a percentage of total balance sheet debt over the next
The outlook and/or ratings may be subject to upward revision if Coleman
Cable demonstrates the sustained ability to significantly expand the revenue
base above and beyond GDP-like annual growth without eroding operating
margins and sacrificing free cash flow generation and debt reduction.
Moody's notes that Coleman Cable's key competitors have significantly
larger revenue bases and consequently greater access to resources in managing
through industry downturns. The agency also acknowledges that Coleman
Cable's operating model is quite different when considering markets served
and its diverse customer base. Conversely, ratings may be
negatively impacted if free cash flow generation and leverage metrics
do not show steady improvement beyond 2004.
The SGL-3 rating recognizes the company's adequate liquidity to
fund the cash needs of the business including working capital requirements
and capital expenditures over the next twelve months. As noted
previously, free cash flow generation will be modest. The
secured bank facility will be utilized on a regular basis with availability
governed by a borrowing base. Covenants under this facility provide
adequate cushion for the continuation of availability at this time.
Substantially all of the assets of the borrower and its subsidiaries will
be pledged under this revolving credit facility, thereby limiting
alternate liquidity from the sale of non-core assets.
Coleman Cable, Inc., headquartered in Waukegan,
IL, is a leading designer, developer, manufacturer and
supplier of specialty wire and cable products in the United States.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
George A. Meyers
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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