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13 Dec 2010
New York, December 13, 2010 -- Moody's Investors Service assigned a B1 rating to Scotts Miracle-Gro
Company ("Scott's") $200 million senior unsecured
note and affirmed all other ratings, including the Ba2 CFR and PDR,
B1 on the existing senior unsecured notes and SGL 2 speculative grade
liquidity rating. The outlook is positive.
Proceeds from the $200 million notes will be used to repay amounts
outstanding under the revolving credit facility ($110 million),
term loan ($60 million),and for general corporate purposes
(roughly $25 million) and transaction fees.
The positive outlook recognizes the improvement Scott's has made
over the last year in its earnings and capital structure. "Importantly,
the positive outlook reflects Moody's view that these improvements
should continue in the near to mid-term as Scott's has shed non-core
assets, furthers its costs efficiency efforts and regional product
focus and continues to capitalize on its strong market position in the
consumer lawn & garden sector," said Kevin Cassidy,
Senior Credit Officer at Moody's Investors Service. Scott's
commitment to maintaining unadjusted average financial leverage between
2x and 2.5x is also considered in the positive outlook.
"We believe Scott's will adjust its share repurchases to remain
within this targeted leverage range," added Cassidy.
The rating could be upgraded if credit metrics are maintained at current
levels in the mid-term despite expected higher raw material prices
and possible weather fluctuations. Staying within the targeted
unadjusted leverage goal is also necessary for us to consider an upgrade
as is the refinancing of its revolving credit facility well before its
February 2012 due date. A commitment to not increase leverage above
the targeted range to fund shareholder returns would also be necessary
for an upgrade to be considered.
A downgrade is not likely in the near to mid-term. The rating
could be stabilized if the company were to increase leverage for a shareholder
return or if credit metrics were to unexpectedly deteriorate to previous
levels with adjusted leverage over 3x for a sustained period. Failure
to stay within its targeted unadjusted leverage target over the longer
term could also cause the outlook to be stabilized.
The Ba2 corporate family rating reflects Scott's strong market position,
efficient operational platform, strong customer relationships and
commitment to brand support and product development. The ratings
are constrained by the seasonality of its earnings and cash flows,
weather dependency, exposure to volatile raw materials prices,
and by its highly concentrated customer base. In addition,
Moody's believes that Scott's will likely use its excess cash
flow over the medium term for share repurchases or targeted acquisitions,
rather than being less reliant on its revolver for seasonal working capital
needs. Nevertheless, Moody's recognizes the long-term
favorable growth trends for lawn and garden products driven by favorable
demographic and macro economic trends, and expects Scott's
credit metrics to essentially remain at current levels over the medium
term, or slightly improve depending on raw material prices.
The B1 rating of the senior unsecured notes reflects both the overall
probability of default of the company, to which Moody's assigns
a PDR of Ba2, and a loss given default of LGD 5. Moody's
used a 50% family LGD rate as the company's capital structure
consists of both unsecured and secured obligations. The notes are
pari passu with the existing unsecured notes in all aspects. The
ratings of the unsecured notes also reflect the senior position of the
revolver in the capital structure.
The following rating was assigned:
$200 million senior unsecured notes rating at B1 (LGD5, 86%);
The following ratings were affirmed/assessments revised:
Corporate Family Rating at Ba2;
Probability of Default Rating at Ba2;
$200 million senior unsecured notes rating at B1 (LGD5, 86%
Speculative grade liquidity rating at SGL 2
For additional information, please refer to our Credit Opinion of
Steinway published on Moodys.com.
The last rating action was on January 11, 2010, where Moody's
rated Scott's $200 million senior unsecured notes B1 and
initiated a Ba2 CFR and PDR.
The principal methodologies used in this rating were Global Packaged Goods
Industry methodology published in July 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Located in Marysville, Ohio, Scott's is a manufacturer
and marketer of consumer lawn care and garden products, primarily
in North America and in Europe. Scott's also operates the
Scotts Lawn Service business and sells professional products. Revenue
for the year ended September 30, 2010, approximated $3.1
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service 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
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 rating to Scotts Miracle-Gro $200 million unsecured notes; outlook positive
250 Greenwich Street
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