Approximately $285 million of rated debt
New York, March 01, 2013 -- Moody's Investors Service affirmed the B3 Corporate Family Rating and
B3-PD Probability of Default Rating of Harlan Laboratories,
Inc. ("Harlan") and assigned a B1 rating to the proposed $200
million first lien term loan and a Caa2 rating to the proposed $85
million second lien facility. The rating outlook is stable.
Ratings Affirmed:
Corporate Family Rating, B3
Probability of Default Rating, B3-PD
Ratings Assigned:
Proposed $20 million First Lien Revolving Credit Facility,
due 2016, B1 (LGD3, 33%)
Proposed $200 million First Lien Term Loan, due 2016,
B1 (LGD3, 33%)
Proposed $85 million Second Lien Term Loan, due 2017,
Caa2 (LGD5, 81%)
The outlook is stable.
Ratings to be withdrawn upon repayment:
Harlan Laboratories:
First Lien Revolving Credit Facility, due 2013, B3 (LGD3,
46%)
First Lien Term Loan, due 2014, B3, (LGD3 46%)
Harlan Netherlands B.V.:
First Lien EURO Revolving Credit Facility, due 2013, B3 (LGD3,
46%)
RATINGS RATIONALE
The B3 Corporate Family Rating is constrained by Harlan's small absolute
size, high financial leverage, and limited free cash flow.
A challenging industry environment, along with operational missteps,
have resulted in stagnant revenue and earnings over the past several years.
Moody's expects a number of these challenges to persist, thereby
limiting near-term growth and deleveraging opportunities.
The ratings are supported by the relative stability and high barriers
to entry in the research models and services (RMS) business and Harlan's
solid position worldwide in that market. The ratings are also supported
by Harlan's good customer and end-market diversity.
Further, Moody's expects the company to maintain adequate
liquidity over the next 12 months and believes that the company's
value exceeds the debt.
Although not anticipated, if Harlan demonstrates sustainable revenue
growth and EBITDA improvement such that adjusted leverage approaches 5.0
times, and free cash flow to debt exceeds 5% Moody's
could upgrade the ratings. Upward rating action would further be
supported by improvement in the overall preclinical services market.
Sustained negative free cash flow or a decline in EBITDA such that leverage
was expected to be sustained above 7.0x could lead to a ratings
downgrade. Further, if the company's organic growth
trends are consistently worse than other industry peers, Moody's
could downgrade the ratings.
Harlan Laboratories ("Harlan"), headquartered in Indianapolis,
Indiana, is a global provider of products and services used in discovery
and development research in the pharmaceutical, biotechnology,
agrochemical, industrial chemical, and food industries.
The company's businesses include research models and services (RMS),
including laboratory diets and bedding, and biomedical products
and pre-clinical contract research services (CRS), including
toxicology, environmental chemistry and pharmanalytics. For
the twelve months ended December 2012, Harlan generated net sales
approximating $347 million. Harlan is privately held with
majority ownership by Genstar Capital.
The principal methodology used in this rating was the Global Business
& Consumer Service Industry Rating 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
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jessica Gladstone
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
Peter H. Abdill, CFA
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 Affirms Harlan's B3 Corporate Rating; Stable Outlook