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Rating Action:

Moody's assigns B2 CFR to MedPlast Holdings, Inc.

17 Jul 2018

New York, July 17, 2018 -- Moody's Investors Service ("Moody's) assigned a B2 Corporate Family Rating (CFR) and B2-PD Probability of Default Rating to MedPlast Holdings, Inc. ("MedPlast"). Moody's also assigned a B1 rating to the company's first lien credit facilities comprised of a $70 million revolving credit facility and a $500 million first lien term loan and a Caa1 rating to the company's $225 million second lien term loan. The rating outlook is stable.

Medplast is acquiring the Advanced Surgical and Orthopedics business ("AS&O") from Integer Holdings Corporation for $600 million. The transaction will be financed with proceeds from the new credit facilities and $251 million of equity contributed by its owners. Proceeds will also be used to refinance existing MedPlast debt and pay transaction fees.

The following ratings were assigned:

MedPlast Holdings, Inc.

Corporate Family Rating at B2

Probability of Default Rating at B2-PD

$70 million first lien revolving credit expiring 2023 at B1 (LGD 3)

$500 million first lien term loan due 2025 at B1 (LGD 3)

$225 million second lien term loan due 2026 at Caa1 (LGD 5)

Rating outlook: stable

RATINGS RATIONALE

MedPlast's B2 Corporate Family rating reflects its high financial leverage following the debt-financed purchase of AS&O. Moody's expects debt/EBITDA to remain high, but fall below six times in the next 12-18 months. The rating also reflects the integration risk associated with the AS&O acquisition, which nearly doubles Medplast's size. Moody's believes that MedPlast benefits from relatively stable demand for contract manufacturing services among its large medical device customers. The regulated nature of the company's products means that the costs to its customers of switching to another manufacturer are very high. Additionally, MedPlast's customers bear the vast majority of input cost volatility. Medplast's and AS&O's operations have complementary manufacturing platforms, which will enable the combined firm to broaden and deepen its customer relationships. Medplast's ratings are constrained by customer concentration as three companies. Medtronic Plc, Johnson & Johnson and Zimmer Biomet Holdings, Inc. account for over 40% of revenues. The customer concentration risk is mitigated by the breadth of products with each company and the company's long standing relationships with these customers.

The B1 rating assigned to the first lien credit facilities is one notch higher than the B2 CFR. The first lien credit facilities benefit from the level of junior capital provided by the second lien term loan. The Caa1 rating on the second lien term loan reflects its effective subordination to the revolving credit facility and first lien term loan.

The rating outlook is stable. Moody's expects that MedPlast will successfully integrate the AS&O acquisition with debt/EBITDA tending below six times over the next 12 to 18 months.

Ratings could be upgraded if MedPlast successfully integrates the AS&O acquisition without disruption to operations or its customer relationships. Quantitatively, ratings could be upgraded if debt/EBITDA is sustained below 5 times.

Ratings could be downgraded if integration of AS&O is poorly executed, the company incurs meaningful contract losses, or if operating performance deteriorates. Quantitatively, ratings could be downgraded if debt/EBITDA is sustained above 6 times

Headquartered in Foxborough, MA, MedPlast is an outsourced manufacturer of medical devices serving a broad range of therapeutic areas including cardiovascular, orthopedics and advanced surgical. MedPlast is owned by affiliates of JLL Partners and Water Street Healthcare Partners.

The principal methodology used in these ratings was Medical Product and Device Industry published in June 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.

Scott Tuhy
Senior Vice President
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

Peter H. Abdill, CFA
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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