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I AGREE
10 Dec 2010
Approximately $550 million of rated debt affected
New York, December 10, 2010 -- Moody's Investors Service assigned HDT Worldwide, LLC ("HDT") a
Corporate Family and Probability of Default ("CFR" and "PDR" respectively)
ratings of B3, a B1 rating to planned $325 million senior
secured bank facilities and a Caa2 rating to planned $225 million
senior unsecured notes issue. The rating outlook is stable.
RATINGS RATIONALE
Proceeds from the transaction will be used to refinance approximately
$337 million of debt and fund a $163 million dividend.
Following the transaction and repayment of the debt, we expect to
withdraw all ratings at Hunter Defense Technologies, Inc.,
a subsidiary of HDT.
The B3 Corporate Family Rating reflects the large size of the dividend
relative to the free cash flow projected to be generated over the next
few years together with the two very large acquisitions just completed
this year. While the acquisitions completed this year are expected
to contribute to the company's profitability and did not increase
leverage, the debt being raised to fund the dividend meaningfully
does. We believe these transactions reflect a more aggressive financial
policy than existed previously.
The stable outlook is based on the expectation of ongoing profitable operations
and modest debt reductions from free cash flow. Maintenance of
a good liquidity profile combined with the likelihood that earnings should
be fairly stable over the near-term are supported by the company's
backlog.
The B3 CFR also encompasses HDT's modest operating scale,
customer concentration and the longer term potential for earnings volatility.
HDT's business and financial risk are partially mitigated by the Company's
good market position in its product categories, the sole-source
status of many of HDT's products to the U.S. Department
of Defense and good penetration of HDT's environmental control and power
generation products within the U.S. military. The
high growth at some of the recently acquired businesses could help some
rating deleveraging over the rating horizon. While the Nordic Air
and Airborne acquisitions should widen HDT's customer range and its environmental
control as well as aerial systems product suite, the businesses
do not have a long track record of operating as a combined entity as these
acquisitions both took place in early 2010. Additionally,
the rating is supported by Moody's expectation that HDT should maintain
good liquidity primarily through positive free cash flow throughout the
near term.
Given HDT's credit metrics subsequent to the proposed dividend recapitalization
and the combination of the two large acquisitions done earlier this year,
Moody's does not anticipate upward movement in the Corporate Family Rating
in the near-term. Nonetheless, Moody's could consider
upgrading HDT's rating outlook if current profitability and leverage
proves to be sustainable. HDT's rating could be upgraded
if the Company generates ample free cash flow and if it demonstrates the
ability to rapidly de-lever to a debt-to-EBITDA leverage
of less than 5.0x (on a Moody's standard adjusted basis),
incorporating the potential for acquisitions which further de-lever
HDT's balance sheet via partial equity financings.
Conversely, HDT's rating could be downgraded if the Company's
liquidity deteriorates or its free cash flow becomes negative.
Additional downgrade triggers include material debt-financed acquisitions
or shareholder actions which could delay anticipated deleveraging.
Moody's assigned the following ratings (and LGD point estimates) to HDT
Worldwide, LLC . The ratings assigned are subject to review
of final documentation.:
Corporate Family Rating, B3
Probability of Default Rating, B3
$50 million revolving credit facility due 2015, B1 (LGD-2,
27%)
$275 million term loan due 2016, B1 (LGD-2,
27%)
$225 million senior unsecured notes due 2017, Caa2 (LGD-5,
81%)
For additional information, please refer to the Credit Opinion to
be posted on moodys.com.
HDTs ratings were assigned by evaluating factors we believe are relevant
to the credit profile of the issuer, such as i) the business risk
and competitive position of the company versus others within its industry,
ii) the capital structure and financial risk of the company, iii)
the projected performance of the company over the near-to-intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of HDT's core industry and HDT's ratings are believed to be comparable
to those of other issuers of similar credit risk.
The principal methodologies used in this rating were Global Aerospace
and Defense published in June 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
HDT Worldwide, LLC, headquartered in Solon, OH,
is a provider of tactical shelters, chemical, biological,
radiological, nuclear (CBRN) filters and collective protective systems,
and mobile power and temperature control equipment for the U.S.
military and Homeland Security. HDT's Aerial Systems segment
manufactures and distributes parachutes and aerial delivery systems.
The company is largely owned by affiliates of Metalmark Capital LLC.
Annual proforma revenues approximate $486 million.
REGULATORY DISCLOSURES
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 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
Jadijhe Adamo
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns B3 CFR to HDT Worldwide, LLC
No Related Data.
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