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Rating Action:

Moody's assigns B2 CFR to Brookfield WEC Holdings Inc.; outlook stable

09 Jul 2018

$3.25 billion of debt rated

New York, July 09, 2018 -- Moody's Investors Service assigned a B2 Corporate Family Rating (CFR) and a B2-PD Probability of Default Rating (PDR) to Brookfield WEC Holdings Inc. (Westinghouse Electric Company). At the same time, Moody's assigned a B2 rating to the proposed $2.6 billion first lien term loan and $200 million revolving credit facility, and a Caa1 rating to the $450 million second lien term loan. The proceeds from the term loans, along with an equity contribution from Brookfield Business Partners, will be used to fund the acquisition of Westinghouse Electric Company out of Chapter 11 bankruptcy. The ratings outlook is stable. This is the first time Moody's has rated Brookfield WEC Holdings Inc.

"Brookfield WEC Holdings' B2 corporate family rating reflects its strong competitive position and technical expertise in a sector with high barriers to entry. However, it also incorporates its elevated financial leverage and limited growth opportunities due to reduced nuclear power plant development and the ongoing decommissioning of existing power plants," said Michael Corelli, Moody's Vice President -- Senior Credit Officer and lead analyst for Brookfield WEC Holdings Inc.

Assignments:

..Issuer: Brookfield WEC Holdings Inc.

.... Probability of Default Rating, Assigned B2-PD

.... Corporate Family Rating, Assigned B2

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

....Senior Secured 1st Lien Revolving Credit Facility, Assigned B2 (LGD3)

....Senior Secured 2nd Lien Term Loan, Assigned Caa1 (LGD5)

Outlook Actions:

..Issuer: Brookfield WEC Holdings Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

WEC Holdings' B2 corporate family rating reflects its solid market position and geographic diversity as its services about two-thirds of the world's nuclear reactors and is the original equipment manufacturer or technology provider in about half the world's nuclear reactors. It also incorporates its strong technical capabilities and the high barriers to entry since it delivers mission critical products and services to mostly blue chip customers in the nuclear power sector under long term contracts with high renewal rates. These attributes along with its focus on cost cutting initiatives should enable the company to consistently generate positive free cash flow. However, the company's rating is constrained by its elevated financial leverage, lack of end market diversity and limited growth opportunities due to reduced nuclear power plant development and the ongoing decommissioning of existing nuclear reactors. The rating also reflects the lack of operating history under WEC's new corporate structure.

Moody's anticipates that WEC will benefit from cost savings related to its transformation plan and relatively steady demand for the services it provides to nuclear power generating facilities. WEC expects to generate revenues greater than the $3.6 billion reported in fiscal 2017, and to produce mid-double digit EBITDA margins in fiscal 2018 (ends March 2019), which would result in an adjusted leverage ratio (Debt/EBITDA) in the range of 6.0x-6.5x, and an interest coverage ratio (EBITA/Interest Expense) of 2.0x-2.5x. If the company meets its forecast, then its credit metrics will support the B2 corporate family rating. However, the company's financial projections incorporate moderate growth expectations and substantial adjustments versus historical audited financials, and its metrics could be materially weaker if expected growth rates and cost savings are not achieved.

WEC is expected to maintain good liquidity and will have no meaningful debt maturities prior to the maturity date of the proposed $200 million ABL facility and the $200 million revolving credit facility in 2023. The company is expected to maintain a moderate cash balance and full availability on the ABL and revolver, which are both expected to be undrawn at closing. The company should generate consistently positive free cash flow due to its sizeable order backlog and the recurring nature of the services it provides.

Instrument-level ratings on the first and second lien term loans reflect their relative position in the company's capital structure. The B2 rating on the revolving credit facility and the first lien term loan reflects the fact that it accounts for the preponderance of debt in the company's capital structure and has a first priority lien on fixed assets and second priority lien on accounts receivables and inventory. The company is also establishing a $200 million ABL facility, which will have a first lien on the latter collateral. The Caa1 rating on the second lien term loan reflects its second priority position on the same security as the revolver and first lien term loan.

The stable ratings outlook presumes the company's operating results will moderately improve over the next 12 to 18 months and it will maintain credit metrics that support its rating.

The ratings could be upgraded if the company sustains its EBITDA margins at projected levels, consistently generates positive free cash flow and reduces its outstanding debt. A leverage ratio sustained below 4.5x, interest coverage above 2.0x and mid double digit EBITDA margins could support an upgrade.

Negative rating pressure could develop if the company has a weaker than expected operating performance or pursues shareholder friendly actions that result in negative free cash flow and a material deterioration in its credit metrics. The leverage ratio rising remaining above 6.0x or the interest coverage ratio persisting below 1.5x could lead to a downgrade. A significant reduction in borrowing availability or liquidity could also result in a downgrade.

Brookfield WEC Holdings Inc., headquartered in Cranberry Township, PA provides engineering, maintenance and repair services as well as highly-engineered parts and consumables to the global nuclear power sector. The company provides engineering support to nuclear plant operators, designs and manufactures fuel for nuclear reactors, provides maintenance services during required outages, manufactures specialized components and parts, and provides decontamination, decommissioning, remediation and waste management services for nuclear power plants. The company produced revenues of $3.6 billion during the twelve months ended March 31, 2018. Brookfield Business Partners has agreed to acquire Westinghouse Electric Company (WEC) and will be the majority owner of the company after the acquisition is completed.

The principal methodology used in these ratings was Construction Industry published in March 2017. 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.

Michael Corelli
VP - Senior Credit Officer
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

Brian Oak
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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