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24 Jun 2016
Approximately $316 million of debt obligations affected
New York, June 24, 2016 -- Moody's Investors Service affirmed Douglas Dynamics L.L.C.'s
(Douglas Dynamics) Corporate Family and Probability of Default ratings
at B1, and B1-PD, respectively. In related action
Moody's downgraded Douglas Dynamics' senior secured term loan
rating to B2 from B1. The rating action incorporates the proposed
$130 million add-on amount to the senior secured term loan.
The Speculative Grade Liquidity Rating ("SGL") was downgraded to SGL-3
from SGL-2. The rating outlook remains stable.
Proceeds from the $130 million senior secured add-on term
loan along with additional funds from the company's revolving credit
facility and cash balances will be used to fund the recently announced
acquisition of Dejana Truck & Utility Equipment Companies (Dejana)
for a purchase price of $206 million including a $26 million
earn out provision. Dejana is a leading fitter of Class 4-6
trucks and other commercial work vehicles in the Eastern U.S.
Dejana also is a leading specialized manufacturer of storage solutions
for trucks and vans and cable pulling equipment for trucks.
Moody's took the following rating actions on Douglas Dynamics L.L.C.:
Corporate Family Rating, at B1;
Probability of Default Rating, at B1-PD;
$316 million (upsized amount) senior secured term loan due 2021,
to B2 (LGD4) from B1(LGD4);
Speculative Grade Liquidity Rating, to SGL-3 from SGL-2
Rating Outlook, Stable.
The affirmation of Douglas Dynamics B1 CFR reflects the competitive benefits
of the acquisition of Dejana, which mitigate the pro forma increase
in Debt/EBITDA leverage to 3.2x (incorporating Moody's standard
adjustments) due to the acquisition from 2.2x. Douglas Dynamics'
base business of manufacturing snow and ice control equipment for light
trucks and other vehicles is highly variable as it is subject to annual
snow fall levels. The Dejana acquisition will further diversify
Douglas Dynamics' business profile and moderate the impact of weather
on the company's performance. The acquisition of Henderson
Enterprise Group, Inc. in December 2014 also helped diversify
the company's operations into governmental agencies such as Departments
of Transportation and municipalities. With pro forma Debt/EBITDA
leverage remaining within the 2.5x-3.5x normalized
range anticipated for the rating assuming average snowfalls, the
transaction is modestly credit positive. The transaction should
further demonstrate the company's successful management of the business
within the assigned rating over the years supported by a flexible cost
structure and an extensive distribution network.
The downgrade of the senior secured term loan to B2 from B1 reflects its
increased size and the increased utilization of the revolver, which
has a stronger collateral position than the term loan. The rating
also incorporates expected weaker asset coverage for the secured term
loan under a default scenario.
The Speculative Grade Liquidity rating downgrade to SGL-3 from
SGL-2 reflects the reduction in cash and increased revolver usage
to support the Dejana acquisition, and our expectation of an adequate
liquidity profile over the next 12-15 months. Moody's
expects the company will utilize substantially all of its $48.4
million cash as of March 31, 2016 to help fund the Dejana acquisition.
Liquidity is supported by a $100 million asset-based revolving
credit facility, and anticipated free cash flow generation.
As of March, 31, 2016 the company had about $98 million
of availability under the revolving credit facility. Pro forma
for the acquisition, revolver availability is expected to decline
to about $63 million. Moody's projects availability
will fall further to a $30-$40 million range as increases
in inventory in the second and third quarters to support the peak selling
season consumes cash. Yet, over the next 12-15 months,
Douglas Dynamics is expected to generate free cash flow as a percentage
of debt in the high single digit range which should support increasing
availability under the revolver as seasonal sales pick up. The
financial covenant under the revolving credit is a springing minimum 1.0x
fixed charge coverage ratio (FCCR) test if availability falls below $12.5
million. The covenant is unlikely to be tested over the next 12-15
months, but Moody's expects the FCCR will remain comfortably
above 1.0x. There are no term loan financial maintenance
The stable outlook incorporates the expectation that Douglas Dynamics'
operating flexibility and more diverse business profile will continue
to drive operating performance that sustains meaningfully positive free
cash flow and debt-to-EBITDA within the range expected for
the assigned rating.
The company's small scale, weather-dependent seasonal demand,
and shareholder-friendly financial philosophy limit upward rating
momentum. However, Moody's could consider upgrading the rating
if the company carried very little balance sheet debt and maintained a
significant liquidity cushion. Moody's could downgrade the rating
if Moody's expects debt-to-EBITDA leverage to be sustained
above 4 times, persistently negative free cash flow, or a
substantive deterioration in liquidity.
The principal methodology used in these ratings was Global Automotive
Supplier Industry published in June 2016. Please see the Ratings
Methodologies page on www.moodys.com for a copy of this
Douglas Dynamics designs, manufactures, sells, and supports
snow and ice control equipment for light trucks. Headquartered
in Milwaukee, Wisconsin, the company generated approximately
$395 million of revenue for the twelve months ended March 31,
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 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
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Timothy L. Harrod
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Corporate Finance
Corporate Finance Group
Moody's affirms Douglas Dynamics CFR at B1; downgrades term loan rating to B2
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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