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Rating Action:

Moody's affirms Lineage CFR at B3, assigns B3 ratings to new term loan B; outlook stable

13 Feb 2018

New York, February 13, 2018 -- Moody's Investors Service ("Moody's") affirmed its ratings for Lineage Logistics, LLC. ("Lineage") including the company's B3 Corporate Family Rating (CFR) and its B3-PD Probability of Default rating. The affirmations follow the company's announcement that it intends to refinance existing term loan indebtedness. Concurrently, Moody's assigned a B3 rating to the proposed $500 million senior secured term loan B due 2025. Ratings on the existing term loan will be withdrawn upon close of the transaction. The rating outlook is stable.

RATINGS RATIONALE

The B3 corporate family rating balances Lineage's growing scale and footprint against the company's highly leveraged balance sheet and adequate liquidity profile that is weighed down by an aggressive investment strategy. Lineage is the second largest provider of refrigerated storage services in the world (footprint of around 760 million cubic feet) and operates in an industry with clear economies of scale advantages serving its well-diversified customer base.

Moody's acknowledges Lineage's good competitive standing as one of the leading providers of cold storage facilities as well the stable demand characteristics for its services. Moody's also recognizes the generally non-discretionary nature of food products that are housed at Lineage's warehouses. This provides considerable sales and earnings visibility and permits a more leveraged capital structure than otherwise might be expected for the rating.

Nevertheless, the company's highly leveraged balance sheet (pro forma Moody's adjusted Debt-to-EBITDA of around 8.8x) is very much at the weaker end of the rating category and is seen as constraining near-term financial flexibility. Furthermore, Lineage's aggressive growth-oriented strategy which involves significant investments, currently well beyond the bounds of internally generated cash flows, continues to result in an adequate liquidity profile and a reliance on external sources of financing. The rating is also constrained by the comparatively modest level of absolute operating cash flow that Lineage is currently generating (estimated 2017 CFO of $86 million compares to 2014 CFO of $42 million) despite significant on-going growth-oriented investments in the business (cumulative acquisition and capex spend of almost $900 million since the start of 2015).

We expect Lineage to maintain an adequate liquidity profile over the next 12 months. Cash balances are anticipated to be modest as the company continues to make large-sized expansionary and greenfield investments, well in excess of maintenance-based capex of about $50 million. As such, we expect negative free cash flow in 2018 (likely to be in excess of -$50 million) which we anticipate to be funded by new committed real estate loans to be funded in Q1 2018 as well as periodic usage under the currently unused $200 million ABL that expires in April 2020.

The stable outlook reflects the stable and recurring nature of demand within the cold storage industry along with our expectations of continued topline and earnings growth.

The ratings could be upgraded if Lineage were to strengthen its balance sheet such that Moody's adjusted Debt-to-EBITDA was expected to remain below 7.0x. An improved liquidity profile and expectations of a prudent financial policy would be prerequisites to any upgrade. The ratings could be downgraded if Moody's adjusted Debt-to-EBITDA was expected to be sustained above 8.5x. Reversals of recent operational improvements, the loss of a major customer, or a sustained weakening of profitability such that EBITDA margins were expected to remain in the low-20% range could also result in a downgrade. A deterioration in the company's liquidity would also place downward pressure on the rating.

The following summarizes today's rating action:

Issuer: Lineage Logistics, LLC.

Ratings affirmed:

Corporate Family Rating, affirmed at B3

Probability of Default Rating, affirmed at B3-PD

The following ratings were assigned:

Gtd Senior Secured Term Loan B due 2025, assigned B3 (LGD 4)

The following ratings are unchanged and will be withdrawn upon close:

$660 million ($637 million outstanding) senior secured term loan B due 2021, B3 (LGD 4)

Outlook, Stable

Lineage Logistics, LLC, headquartered in Novi, MI., is one of the largest providers of refrigerated storage services in the world. Lineage is owned and managed by Bay Grove, a principal investment firm. For the twelve months ended December 2017, the company generated estimated revenues of approximately $962 million.

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.

REGULATORY DISCLOSURES

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 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.

Eoin Roche
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

Robert Jankowitz
MD - Corporate Finance
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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