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29 Nov 2010
Up to $2.5 billion of debt rated
New York, November 29, 2010 -- Moody's Investors Service assigned a B2 (LGD-3, 37%)
rating to CDW Corporation's ("CDW") proposed senior
secured extended term loan maturing 2017 and $300 million senior
secured notes due 2018. All other CDW ratings remained unchanged
and the outlook is stable. These actions follow the company's recently
launched proposed amendment of its existing credit agreement. The
assigned ratings are subject to review of final documentation and no material
change in the terms and conditions of the transactions as advised to Moody's.
The extended term loan and senior secured notes ratings are also contingent
on passage of the amendment.
The following new ratings and assessments were assigned:
Up to $2.2 Billion Senior Secured Extended Term Loan B due
2017 -- B2 (LGD-3, 37%)
$300 Million Senior Secured Notes due 2018 -- B2 (LGD-3,
The proposed amendment is designed to extend the maturity date of a portion
or all of the company's existing $2.2 billion term loan
as well as give CDW the ability to issue senior secured notes.
The extended term loan and senior secured notes will benefit from the
same collateral package as the existing term loan (i.e.,
first priority lien on PP&E and other tangible assets plus a second
priority lien on the ABL collateral). Proceeds from the secured
notes will be used to reduce the existing term loan. Any remaining
amount of the term loan not extended will mature at the pre-existing
maturity date. As a result of the two proposed transactions,
we expect the company's annual interest expense to increase slightly.
CDW's B3 corporate family rating (CFR) continues to reflect the
company's extremely large debt load. CDW's high financial leverage,
weak credit protection measures as well as limited financial covenants
are negative factors weighing heavily on the rating. However,
relatively consistent profitability demonstrated during business downturns
tempers this concern. Additional factors captured in the CFR include
CDW's modest operating margins, significant vendor concentration,
CDW's lack of exposure to large international markets experiencing relatively
higher growth rates, exposure to the SMB (small and medium-sized
business) segment and revenue correlation to macro-economic cycles.
The rating is supported by CDW's position as a leading direct marketer
of IT solutions with a history of market share gains, good demand
visibility and diversified customer base across market verticals.
CDW has favorable prospects for continued market share gains due to its
broad product offering relative to smaller VARs, potential migration
of business to CDW as vendors consolidate channel partners and the company's
improvement in customer penetration. Notably, CDW exhibited
relative earnings stability and positive free cash flow (FCF) generation
during the recent industry downturn, and reduced adjusted total
debt to EBITDA from 10.9x at the time of the LBO to 7.9x
as of LTM 9/30/10.
The stable rating outlook reflects CDW's relatively consistent revenue
stream from the public sector (approximately 41% of LTM revenues)
and Moody's expectations for the continuation of stable vendor/customer
relationships. Given the CDW's $4.2 billion
of net debt and modest FCF generation, Moody's does not expect the
company to substantially repay debt over the next 12 -- 18 months.
Maintenance of the stable outlook is predicated on cautious cash management
and stable margins as a result of conservative financial and operating
Moody's subscribers can find additional information in the CDW Credit
Opinion published on www.moodys.com.
The last rating action was on November 29, 2007 when Moody's initially
assigned the B3 CFR and stable outlook.
The principal methodologies used in this rating were Global EMS and IT
Distribution Industries published in December 2008, and Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009.
CDW Corporation ("CDW"), headquartered in Vernon Hills, Illinois,
is a leading direct marketer and value-added reseller of multi-branded
information technology (IT) products and value-added services in
the U.S. and Canada. On October 12, 2007,
the company was acquired by private equity sponsors, Madison Dearborn
Partners, LLC and Providence Equity Partners Inc. in a public-to-private
company LBO transaction valued at $7.55 billion.
Revenues for the twelve months ended September 30, 2010 were $8.5
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
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.
Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B2 to CDW's proposed extended term loan and secured notes; outlook stable
250 Greenwich Street
New York, NY 10007
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