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Rating Action:

Moody's affirms Univar's B2 CFR; rates amended and new term loans B2

08 Nov 2010

Over $1.5 billion of rated debt affected

New York, November 08, 2010 -- Moody's Investors Service affirmed Univar Inc.'s (Univar) B2 Corporate Family Rating (CFR) and assigned B2 ratings to its new Term Loan C and Term Loan C-2 and amended existing term loans A & B. Univar is re-levering its balance sheet to fund distributions to its existing shareholders and fund the acquisition of Basic Chemicals Solutions, LLC (BCS). Separately, the firm's existing shareholders are selling a minority stake (42.5%) to private equity firm Clayton, Dubilier & Rice, LLC. The outlook is stable. The ratings are summarized below.

Univar, Inc.

Ratings affirmed

Corporate Family Rating - B2

Probability of Default Rating - B2

Senior Secured Term Loan A due 2014 - B2 (LGD3, 46%) from B2 (LGD4, 57%)

Senior Secured Term Loan B due 2014 - B2 (LGD3, 46%) from B2 (LGD4, 57%)

Rating assigned

Amended Senior Secured Term Loan A due 2016 -- B2 (LGD3, 45%)

Amended Senior Secured Term Loan B due 2016- B2 (LGD3, 45%)

Senior Secured Term Loan C due 2017 -- B2 (LGD3, 45%)

Senior Secured Term loan C2 due 2017 -- B2 (LGD3, 45%)

Note: The ratings on the old term loans A & B will be withdrawn should all of the lenders agree to the maturity extension when the amendments and extensions to the term loans become effective.

RATINGS RATIONALE

Univar is expected to increase net balance sheet debt by $1.2 billion to fund a $460 million dividend to existing shareholders and the acquisitions of BCS and businesses from the Quaron Group. Operating leases at BCS will increase Moody's adjusted debt balances by approximately an additional $90 million. The dividend recap will be funded with the new $300 million Term Loan C due 2017 and a $160 million draw under its revolver and is expected to be completed in November 2010. In conjunction with this transaction, the terms of the existing debt are being modified (including to allow for the transactions and adjust financial covenant levels) and maturities extended. The process of distributing funds to existing shareholders is expected to result in the repayment of the intercompany debt between Univar Inc. and Ulixes Acquisition BV. The BCS acquisition will be funded by the new $300 million Term Loan C2 due 2017, new $400 million senior subordinated notes due 2018, as well as an equity infusion from the holders of the subordinated debt. The purchase of businesses from the Quaron Group is expected to be paid for from cash balances or through draws under the revolver. In a separate transaction, the current owners will complete the sale of a 42.5% stake in Univar to private equity firm Clayton, Dubilier & Rice, LLC.(CD&R), which will leave both the current majority owner (CVC Capital Partners) and CD&R with large minority stakes in Univar. None of the proceeds from the equity stake sale will remain with Univar.

The B2 CFR reflects Univar's elevated leverage. The aforementioned acquisitions increase the company's leverage to an estimated 6.1x as of December 31, 2010, on a pro forma basis from 4.8x as of June 30, 2010. (The leverage statistics incorporate Moody's standard analytical adjustments.) While balance sheet debt has declined approximately $475 million from $2.4 billion at year-end 2007 to $1.9 billion as of June 30, 2010, debt including Moody's standard analytical adjustments declined a much lower $180 million with almost equal increases in operating leases and pension adjustments accounting for the rise in the analytical adjustments to debt. The expected elevated balance sheet debt level of $3.0 billion as of year-end 2010 positions Univar weakly in its B2 rating category. Part of the balance sheet debt reduction realized over the past two and one-half years was made possible by lower working capital requirements as sales volumes and commodity prices are currently lower than 2008 levels. Univar will be challenged to maintain discipline in its working capital management going forward as sales increase. However, we note Univar has also de-levered in the past through growth in EBITDA generation.

Univar's B2 CFR also reflects expectations for modest debt reduction over the intermediate term, modest operating margins (albeit typical for a chemicals distributor) that allow for a minimal cushion in its highly leveraged situation, an underperforming European business with regional concentration, a product mix weighted towards commodity chemicals, its history of inconsistent free cash flow generation as cash flow has been invested in working capital to support sales growth, and working capital seasonality associated with the company's agricultural chemicals distribution business in Canada that will require the company to borrow additional funds on a seasonal basis. The ratings favorably recognize Univar's leading market share in North America and large market share in Europe, economies of scale, long-lived customer and supplier relationships with minimal concentration, favorable industry trends in outsourcing to distributors that has resulted in the distribution business growing faster than overall chemicals sales, the stable nature of the firm's historical EBITDA generation, improvements in operating results over the past three years, historical positive retained cash flow growth and relatively modest maintenance capital expenditure requirements.

The stable outlook reflects our expectations that Univar will successfully integrate the BCS acquisition, realize substantial synergies from that acquisition, continue to grow its existing businesses' EBITDA while maintaining EBITDA margins above 4% and refrain from further debt-financed acquisitions before it delevers. Should the firm not be successful in realizing synergies from the BCS acquisition and delevering, the outlook or rating could come under negative pressure.

The principal methodologies used in this rating were Global Chemical Industry published in December 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Univar Inc. is one of the largest distributors of industrial chemicals and providers of related services, operating over 200 distribution centers to service a diverse set of end markets in the US, Canada and Europe. The company was taken private in October 2007, and is currently majority owned by funds managed by CVC Capital Partners. The company had revenues of $7.5 billion for the twelve months ended June 30, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties not involved in the ratings, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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.

New York
James Wilkins
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's affirms Univar's B2 CFR; rates amended and new term loans B2
No Related Data.
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