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I AGREE
11 Apr 2011
Approximately €250 million of debt affected
New York, April 11, 2011 -- Moody's Investors Service assigned first-time ratings to Elster
Group SE ("Elster") consisting of a Ba2 Corporate Family Rating and Ba2
Probability of Default Rating. At the same time, Moody's
assigned a Ba2 rating to the proposed senior unsecured euro denominated
notes to be issued by Elster Finance B.V., a wholly-owned
subsidiary of Elster. The new €250 million ($357 million
equivalent) senior unsecured notes due 2018 will be guaranteed by Elster
and its material subsidiaries. The expected proceeds from the notes
offering plus drawings under Elster's new unsecured revolving credit
facility (unrated) and a portion of its cash will be used to repay outstanding
amounts under its existing secured facilities, and cover fees and
expenses. The ratings outlooks for both Elster and Elster Finance
B.V is stable.
RATINGS RATIONALE
Elster's Ba2 corporate family rating primarily reflects its leading
diversified global position in base and advanced metering infrastructure
("AMI") solutions to all three utility sectors (electric,
gas and water) with particular strength in the higher-margin and
relatively stable gas segment. Recurring replacement revenues are
significant while geographic and customer diversification characteristics
also provide stability to the company's revenue streams.
We expect pro forma adjusted Debt/ EBITDA of roughly 3x to improve towards
2.5x through the next 12 to 18 months from both modest earnings
growth and free cash flow applied to debt reduction. Key challenges
within Elster's rating include its vulnerability to the spending
cycles of utilities, the potential that the adoption of AMI solutions
may occur more slowly than expected, persistent and intense price
competition driven by an increase in the number of industry competitors,
and rising commodity costs, which may weigh on the company's
margins. Lastly, CVC Capital Partner's ("CVC") controlling
stake in Elster could influence the pace at which the company's financial
policy objectives are achieved, although we expect this risk to
steadily diminish as CVC reduces its ownership levels over time.
Elster's stable ratings outlook reflects our expectation that its strong
market position and good diversification characteristics should enable
consistent free cash flow generation, supporting a reduction in
its financial leverage to between 2.5x -- 2.8x within
the next 12 to 18 months.
For upward rating consideration, we will need to gain comfort that
future AMI deployments will sustain the company's growth into the medium
term. Upward rating movement would then be considered should Elster
sustain its Debt/ EBITDA close to 2x and EBITA/ Interest above 4.5x.
Downward rating action could occur should adjusted Debt/ EBITDA be sustained
above 3.5x or EBITA/ Interest fall below 3x.
The principal methodologies used in this rating were Global Manufacturing
Industry Rating Methodology published in December 2010, and Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Headquartered in Essen, Germany, Elster is a leading provider
of base metering and metering communication solutions to gas, electric
and water utilities globally. Revenues for the last fiscal year
ended December 31, 2010 were about $1.8 billion,
of which approximately 25% were from the sale of smart offerings
(including Advanced Metering Infrastructure solutions).
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
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independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Toronto
Darren M. Kirk
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635
New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
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Moody's Investors Service
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SUBSCRIBERS: 212-553-1653
Moody's Assigns Ba2 CFR to Elster
No Related Data.
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