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Global Credit Research - 03 Nov 2010
New York, November 03, 2010 -- Moody's Investors Service assigned a B3 corporate family rating
and a B3 probability of default rating to Harbinger Group, Inc.
("Harbinger" or "HRG"). Moody's also
assigned a Caa1 rating to the $325 million senior secured notes
issued by HRG and an SGL 3 speculative grade liquidity rating.
Proceeds from the secured notes will be used for working capital and general
corporate purposes, including the financing of acquisitions,
and investments. The rating outlook is stable. The ratings
and rating outlook are subject to the receipt of all final documentation
and are subject to the completion of the proposed note offering.
HRG is a holding company that is majority owned by Harbinger Capital and
its related entities ("Harbinger Parties"). The company's
principal focus is to identify and evaluate business combinations or acquisitions.
On September 10, 2010, HRG entered into an exchange agreement
with Harbinger Parties pursuant to which it will issue approximately 119.9
million shares of its common stock to Harbinger Parties in exchange for
approximately 27.8 million shares of Spectrum Brands Holdings'
common stock (the "Spectrum Brands Acquisition"). HRG
expects the Spectrum Brands Acquisition to close by the first quarter
of 2011, after which HRG will own over 54% of Spectrum's
The B3 corporate family rating reflects the effective subordination of
HRG to the direct claims on the assets and cash flows of Spectrum Brands,
HRG's only current subsidiary, which is rated B2. HRG's
nascent history and lack of any committed cash flows until at least 2012
is also factored into the rating. The likelihood of HRG making
additional acquisitions is considered as is the potential diversification
benefits of future acquisitions.
Spectrum Brands' B2 corporate family rating reflects its size with
revenue around $3 billion and good product diversification with
products ranging from personal care items, to pet supplies and small
appliances. Spectrum's rating also reflects the general stability
in its operating performance during the recession and our expectation
that credit metrics will continue improving in the near to mid-term.
Spectrum's good liquidity profile is also reflected in the rating
as is its increasing international penetration and its decision to exit
the highly weather dependent fertilizer and growing media business.
The highly competitive battery industry with Spectrum competing against
bigger and better capitalized competitors is a restraint to the rating.
"Moody's expects HRG to use a combination of debt, cash
and equity to fund future acquisitions across various industries,"
said Kevin Cassidy, Senior Credit Officer at Moody's Investors
Service. "Unlike Spectrum Brands, which is not expected
to have dividend capacity until 2012, future acquisitions would
likely be able to pay dividends sooner or the rating may be pressured"
The SGL 3 liquidity rating reflects the sizeable cash balances of about
$450 million proforma for the transaction and the cash collateralization
of the first year interest expense (expected to be about $35 million).
The major restraint to the SGL 3 speculative grade liquidity rating is
the inability to service the debt out of operating cash flow for the next
two years because Spectrum Brands, the only current subsidiary,
is not expected to have dividend capacity until 2012. The lack
of a committed revolving credit facility is also a significant constraint
on liquidity, although not having any near term debt maturities
help (notes mature in 5 years).
The Caa1 rating on the senior secured notes reflects the structural subordination
of the notes to the subordinated notes of Spectrum Brands, which
are rated Caa1, while at the same time recognizing that the notes
have a call on HRG's cash, which Spectrum's bond holders
do not have. Only the obligations of HRG are included in our loss
given default (LGD) notching template. A permanent one notch override
was applied to the LGD notching template.
The stable outlook reflects the stable credit profile of Spectrum Brands
(its only current subsidiary) and Moody's view that HRG will likely invest
in companies that also have viable credit profiles and are able to pay
dividends to HRG. The stable outlook further reflects Moody's
expectation that HRG will maintain an adequate liquidity profile even
as it deploys the proceeds from the debt offering to fund future acquisitions.
An upgrade in the company's ratings is unlikely in the near-term
because of the company's limited history and because of the rating
of its only subsidiary. However, an upgrade to Spectrum's
rating and/or the acquisition of other businesses in different industries
with strong credit profiles could warrant a change in the outlook to positive.
Absent a downgrade to Spectrum's rating, which is unlikely
in the near term given the positive outlook, a downgrade in the
corporate family rating is not likely in the near to mid-term.
The ratings outlook would be negatively impacted if HRG were to make additional
acquisitions that were not able to pay dividends. If additional
senior debt were added to the capital structure, a one notch down
grade to the senior secured notes might occur.
The following ratings were assigned:
Corporate Family Rating at B3;
Probability of Default Rating at B3;
$325 million senior secured notes rating at Caa1 (LGD3, 44%);
Speculative grade liquidity rating at SGL 3
Moody's subscribers can find further details in the HRG Credit Opinion
published on Moodys.com.
Located in New York City, HRG is a holding company that is majority
owned by the Harbinger Group and its related entities. The company's
principal focus is to identify and evaluate business combinations or acquisitions
of businesses. The company has not generated any revenue year-to-date.
However, proforma for the Spectrum Brands Acquisition, revenue
for the year ended December 31, 2009 would have been roughly $3
The principal methodologies used in rating HRG was Moody's 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. Other methodologies and
factors that may have been considered in the process of rating this issuer
can also be found on Moody's website.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, 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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B3 CFR to Harbinger Group and a Caa1 rating to its $325 million sr. secured notes
250 Greenwich Street
New York, NY 10007
No Related Data.
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