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Rating Action:

Moody's affirms AVSC's B3 CFR and rates new acquisition financing; outlook stable

20 Sep 2019

New York, September 20, 2019 -- Moody's Investors Service ("Moody's") assigned a B2 rating to AVSC's Holding Corp.'s ("AVSC," dba "PSAV") proposed $430 million first lien senior secured term loan due 2026 in connection with the company's pending acquisition of Encore Event Technologies, LLC ("Encore"), a leading provider in the audiovisual and event experiences industry. Concurrently, Moody's affirmed PSAV's B3 Corporate Family Rating (CFR), B3-PD probability of Default Rating (PDR), the B2 ratings on its existing first lien credit facility, consisting of a $1.255 billion senior secured term loan due 2025 and a $100 million senior secured revolving credit facility (to be upsized to $135 million) due 2023, and the Caa2 rating on the company's $210 million second lien senior secured term loan due 2025. The outlook remains stable.

The company plans to use proceeds from proposed $430 million first lien term loan, an incremental USD$85 million Canadian term loan (unrated by Moody's) and other secured debt (approximately $76 million) along with new sponsor equity to finance the acquisition and pay associated transaction fees and expenses. Encore is being carved-out from The Freeman Company, a family-owned marketing and live events company. The transaction is moderately credit negative because it increases debt and leverage and elevates execution risk given the size of the target company. On a pro forma basis (including Encore's EBITDA but excluding anticipated costs savings and synergies), PSAV's debt-to-EBITDA (Moody's adjusted) is expected to increase to 6.9 times from 6.6 times for the twelve months ended June 30, 2019.

Nevertheless, the Encore acquisition is expected to provide long-term strategic benefits including, increased exposure to venues with greater production content requirements as well as improved scale and diversity with approximately $2.7 billion in combined pro forma annual revenue as of June 30, 2019. Encore has a strong foothold in the Las Vegas hotel market and meaningful international operations in Canada, Mexico and Asia Pacific. In addition, management has identified approximately $25 million in acquisition synergies expected to be realized within 24 months of closing. This transaction is significantly larger than the company's previous deals since the October 2012 acquisition of Swank AV, however Moody's does not anticipate significant integration issues since both businesses are complimentary and management has a good track record of integrating past acquisitions.

Moody's took the following rating action on AVSC Holding Corp.:

Affirmations:

..Issuer: AVSC Holding Corp.

...Corporate Family Rating, Affirmed B3

...Probability of Default Rating, Affirmed B3-PD

...Senior Secured 1st lien Term Loan, Affirmed B2 (LGD3)

...Senior Secured 1st lien Revolving Credit Facility, Affirmed B2 (LGD3)

...Senior Secured 2nd lien Term Loan, Affirmed Caa2 (LGD6)

Assignments:

..Issuer: AVSC Holding Corp.

...Senior Secured 1st lien Term Loan B, Assigned B2 (LGD3)

Outlook Actions:

..Issuer: AVSC Holding Corp.

...Outlook, Remains Stable

All ratings are subject to the execution of the transaction as currently proposed and Moody's review of final documentation. The instrument ratings are subject to change if the proposed capital structure is modified.

RATINGS RATIONALE

PSAV's B3 CFR reflects Moody's expectation that the company will maintain free cash flow-to-gross debt (Moody's adjusted) around 2-3% while debt-to-EBITDA (Moody's adjusted excluding anticipated acquisition synergies) of approximately 6.9 times as June 30, 2019 and pro forma for the proposed debt-funded acquisition of Encore will steadily decline towards 6.0 times over the next 12 to 18 months. The company's aggressive financial strategy featuring debt financed acquisitions and potential cash distributions may slow the pace of deleveraging. PSAV is considerably larger than its direct competitors in its core service lines. However, its scope of service line diversity and concentrated customer base in the U.S. hotel industry makes it vulnerable to cyclical swings in the level of business travel. Evolving customer requirements for leading-edge audio-visual services lead to high and ongoing capital spending requirements. The rating is supported by Moody's expectations for continued topline and earnings growth and increasing diversification of service lines and customers through acquisitions and new product introductions.

Liquidity is expected to be adequate over the next 12 to 15 months. The company is expected to generate annual positive free cash flow of around $50-60 million annually and have some availability under its upsized $135 million revolver over the next 12-15 months. Free cash flow is seasonal and typically positive in its fiscal second and fourth quarters. Access to the revolver is subject to maintaining a first lien leverage ratio (as defined) of less than 7.5 times, with no future step-downs, when utilization exceeds 35% of the facility. Should the covenant be triggered there is ample cushion within the covenant. There are no term loan financial maintenance covenants.

The stable outlook reflects Moody's expectations for low-to-mid single digit organic revenue growth, some expansion of the EBITDA margin from the addition of new services, realization of synergies and embedded operating leverage in its core markets, slow but steady deleveraging and maintenance of at least adequate liquidity.

Moody's could upgrade PSAV's ratings if profitable revenue growth leads to a material reduction in leverage such that debt-to-EBITDA (Moody's adjusted) leverage trends towards 5.0 times and free cash flow to debt is sustained above 5%. PSAV would also need to maintain sufficient liquidity to manage through periods of cyclical earnings pressure.

Moody's could downgrade PSAV's ratings if the company fails to generate meaningful free cash flow, revenues or margins decline, liquidity weakens for any reason, or adjusted debt-to-EBITDA is sustained above 7.0 times.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

AVSC Holding Corp., operating under the brand name PSAV, is a leading provider in the audiovisual and event experiences industry delivering creative production, advanced technology and staging to help its customers deliver more dynamic and impactful experiences at their meetings, trade shows and special events. PSAV is the event technology provider of choice at leading hotels, resorts and convention centers. Its business model is based on long-term partnerships with these venues, which establish PSAV as the exclusive on-site provider of event technology services. Following the August 2018 leveraged buyout, PSAV is majority owned by affiliates of Blackstone Group, L.P. With the expected acquisition of competitor Encore, the combined company is projected to generate 2019 pro forma revenues around $2.8 billion.

REGULATORY DISCLOSURES

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.

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

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.

Oleg Markin
Asst Vice President - 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

Karen Nickerson
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.
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