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Global Credit Research - 06 Dec 2010
Approximately $171 Million of Rated Bank Debt Affected
New York, December 06, 2010 -- Moody's Investors Service upgraded X-Rite, Incorporated's
("X-Rite") corporate family rating to B2 from B3 and the rating
on the first lien senior secured credit facilities to B1 from B2.
The probability-of-default rating was affirmed at B3.
The rating on the second lien term loan was withdrawn following its recent
redemption. The ratings outlook was revised to positive from negative.
The speculative grade liquidity rating was upgraded to SGL-2 from
Corporate family rating to B2 from B3;
$40 million senior secured revolving credit facility due 2012 to
B1 (LGD3, 31%) from B2 (LGD3, 42%);
$131 million first lien senior secured term loan due 2012 to B1
(LGD3, 31%) from B2 (LGD3, 42%).
Probability-of-default rating at B3.
Second lien senior secured term loan due 2013 at Caa2 (LGD6, 91%).
The upgrade acknowledges X-Rite's improved operating performance
and reflects Moody's expectation of continued organic revenue/earnings
growth and sustained operating margins. The upgrade also considers
improved end-market conditions and global demand trends.
X-Rite's B2 corporate family rating reflects modest scale,
the cyclicality of the business as evidenced by the significant contraction
that occurred in 2009, and limited asset protection from a very
small base of tangible assets. Notwithstanding these concerns,
the rating is supported by the company's moderate leverage with debt to
EBITDA below 4.5 times, good interest coverage metrics,
its competitive position as a full range provider of color management
systems and solutions, good geographic diversity, material
cost reduction activities, modest capital expenditure requirements,
and positive cash flows. The rating also derives support from the
relatively stable competitive landscape, the mission-critical
nature of its products with high switching costs, and its large
installed base of customers.
The positive outlook reflects Moody's expectation that X-Rite
will continue to organically expand its revenues and earnings near-term.
Absent an exogenous event, X-Rite's ratings could be
upgraded if it maintains profitability levels such that debt to EBITDA
is sustained below 4.0 times and continues to generate positive
free cash flow while maintaining a conservative financial policy with
respect to acquisitions and shareholder enhancement activities.
While recognizing the potential for an upgrade of the corporate family
rating to B1, additional ratings momentum is likely constrained
by the company's modest scale.
The ratings and/or outlook could be pressured if a deterioration in end-market
conditions causes operating performance to deteriorate such that debt
to EBITDA approaches 5.0 times or EBITA coverage of interest expense
falls below 1.5 times. If the company's liquidity
profile weakens through reduced covenant cushion or increased revolver
borrowings, this could also pressure the ratings. While not
expected, debt financed acquisitions or aggressive shareholder enhancement
activities could also pressure the ratings and/or outlook.
The upgrade of the speculative grade liquidity rating to SGL-2
from SGL-3 reflects our expectation that X-Rite's liquidity
profile will remain good in the near-term, supported by available
capacity under its revolving credit facility, expectations for positive
cash flow, good flexibility under financial covenants, and
modest near-term debt maturities.
The affirmation of the B3 probability-of-default rating,
one level below the corporate family rating incorporates a change to a
65% recovery rate given that the capital structure now largely
consists of first lien bank debt following the recent redemption of the
second lien term loan, consistent with Moody's Loss Given Default
Additional information can be found in the X-Rite Credit Opinion
published on Moodys.com.
The principal methodologies used in this rating were Global Technology
Hardware published in October 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
X-Rite, Incorporated, headquartered in Grand Rapids,
Michigan, is a provider of color measurement systems offering hardware,
software, and support solutions that ensure color accuracy.
For the twelve months ended October 2, 2010, X-Rite
reported sales of approximately $214 million.
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 maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 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
and accurate data may not be available. Consequently, Moody's
Investors Service 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 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.
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Upgrades X-Rite's CFR to B2; Outlook Positive
250 Greenwich Street
New York, NY 10007
No Related Data.
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