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Rating Action:

Moody's affirms ABB/CON-CISE's Caa1 CFR; outlook positive

07 Apr 2021

New York, April 07, 2021 -- Moody's Investors Service, ("Moody's") affirmed ABB/CON-CISE Optical Group LLC's ("ABB/CON-CISE") ratings, including the Corporate Family Rating (CFR) at Caa1, the Probability of Default Rating at Caa1-PD, the senior secured first lien credit facility rating at B3, and the senior secured second lien credit facility rating at Caa2. At the same time, Moody's revised the outlook to positive from negative.

The change of outlook reflects Moody's expectations that demand for optical products will continue to recover in 2021 but will remain below the pre-coronavirus pandemic level until the pandemic fully recedes.

The affirmation of the Caa1 CFR reflects Moody's expectations that ABB/CON-CISE will maintain adequate liquidity, with flexibility to temporarily absorb any negative cash flow from operations. The affirmation also considers that financial leverage -- albeit very high -- will materially improve in 2021 with earnings growth.

Rating actions

The following ratings were affirmed:

ABB/CON-CISE Optical Group LLC

Corporate Family Rating at Caa1

Probability of Default Rating at Caa1-PD

Senior Secured First Lien term loan at B3 (LGD3)

Senior Secured First Lien revolving credit facility due 2022 at B3 (LGD3)

Senior Secured Second Lien credit facilities at Caa2 (LGD5)

Outlook action

Revised to positive from negative

RATINGS RATIONALE

The Caa1 Corporate Family Rating reflects ABB/CON-CISE's very high financial leverage with debt/EBITDA of 8.0 times for the LTM period ended September 30, 2020, and challenges to growth revenue and profitability. Deleveraging largely hinges on the company's ability to grow earnings and reduce costs. The rating is also constrained by the company's reliance on soft contact lenses which generate over two-thirds of earnings. Near-term pressure on profitability and cash flow is likely to continue until the negative impact of the coronavirus pandemic on demand for soft contact lenses fully recedes.

The rating is supported by ABB/CON-CISE's leading scale and market position among US distributors of soft contact lenses and good diversity across customers and geographies. Moody's expects that ABB/CON-CISE will benefit from long term fundamentals of the optical industry, as well as increased technological innovation within the contact lens market. A weaker economic environment and some lingering disruptions in the healthcare sector will preclude these businesses from operating in 2021 at 100% of Moody's pre-coronavirus expectations, but Moody's expects a significant rebound that will be a key driver of earnings growth.

Moody's anticipates that ABB/CONCISE's liquidity will remain adequate, supported by total liquidity (cash and undrawn credit facilities) of approximately $100 million. Moody's anticipates that ABB/CON-CISE will have adequate headroom on its financial debt covenant. The company does not have any significant upcoming long-term debt maturities, but its revolving credit agreement expires in December 2022, presenting a degree of refinancing risk.

Among ESG considerations, ABB/CON-CISE has no material exposure to environment risk. However, the company regularly encounters elevated elements of social risk, including weak US economic activity and reduced social interactions due to the coronavirus pandemic which has reduced demand for some optical products. Positive social considerations include growing demand for optical products reflecting the aging population, eye strain caused by the increased usage of computers and smaller mobile devices, and technological innovation which has expanded the appeal of the contact lens market. Governance considerations are material to ABB/CON-CISE's credit profile due to its private equity ownership which increases the risk of shareholder-friendly actions that come at the expense of creditors.

The positive rating outlook reflects Moody's view that ABB/CON-CISE will be able to improve earnings and reduce its very high leverage towards 7.0 times within the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if ABB/CON-CISE is able to increase its scale, improve its margin and cash flow profile, and improves its liquidity. Quantitatively, the ratings could be upgraded if debt to EBITDA is sustained below 7.0 times.

The ratings could be downgraded if there is a material deterioration in operating performance or liquidity or if the company's capital structure becomes unsustainable, raising refinancing risk.

The principal methodology used in these ratings was Distribution & Supply Chain Services Industry published in June 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121974. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Coral Springs, Florida, ABB/CON-CISE Optical Group LLC is the largest distributor of soft contact lenses in the United States. ABB/CON-CISE also designs and manufactures customized contact lenses, and operates primarily in facilities in New York, Florida, California and Kentucky. The company is privately owned by financial sponsor, New Mountain Capital. ABB/CON-CISE generated revenues of roughly $1.3 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Jean-Yves Coupin
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jessica Gladstone, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 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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