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Rating Action:

Moody's assigns B3 Corporate Family Rating to Bridge Holdco 4 (Bridon), positive outlook

 The document has been translated in other languages

12 Nov 2014

Frankfurt am Main, November 12, 2014 -- Moody's Investors Service, ("Moody's") has today assigned a B3 corporate family rating (CFR) and B3-PD probability of default rating (PDR) to Bridge Holdco 4 Ltd, the holding company established for the acquisition of Bridon through funds managed by Ontario Teachers' Pension Plan (OTPP). Concurrently, Moody's has assigned a provisional (P)B2 (LGD3-38%) rating to the proposed 7 year USD290 million senior secured first lien term loan, the 5 year USD40 million senior secured revolving credit facility and a (P)Caa2 (LGD6-90%) rating to the proposed USD113 million senior secured second lien term loan. Borrower under the loans will be Bridge FinCo, LLC. The outlook on all ratings is positive. This is the first time that Moody's has rated Bridon.

The ratings are contingent upon OTPP's success in closing its proposed acquisition of Bridon.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect the agency's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavor to assign definitive ratings to the group's proposed senior secured loans. Definitive ratings may differ from provisional ratings.

RATINGS RATIONALE

The assigned B3 CFR is balancing Bridon's relatively high and resilient profitability on the back of fairly stable demand for replacement products and leading positions in the fragmented market for specialized wire ropes with a highly leveraged financial profile and dependency on cyclical end markets.

Bridon's B3 rating is supported by the group's market position as a leading manufacturer of wire ropes that are safety and/or mission critical for asset performance in a diverse range of end markets, including Oil & Gas, Mining and Industrial. We note however that demand in the majority of the group's end markets is cyclical and might therefore negatively impact operating profitability adversely if one or multiple sectors are in a downturn. Balancing this exposure is the company's low dependence on new projects as the majority of demand is driven by replacement activities, therefore insulating the group from new project risks such as delays or cancellations, bringing some visibility to revenues. Strong ties with leading global engineering companies and the fact that Bridon's ropes represent a small portion of operational costs of major miners and oil & gas companies while being critical to the performance further support Bridon's business profile. The rating also positively considers historical earnings stability helped by its exposure to diverse end markets, no material customer concentration and some ability to pass on volatile input costs as well as a focus on cost management.

On a more negative note, the rating is constrained by the fairly small scale of Bridon as indicated by sales of about GBP262 million in the LTM period as of June 2014, albeit with solid geographic diversification. The rating also considers that forecasted growth in sales and profitability might be challenging to achieve considering current weakness in oil prices which could trigger capex cuts at major oil companies and subsequently stable or even slightly reducing number of rigs. Also, while we believe that the mining market has bottomed out, we do not foresee a major recovery which could prevent forecasted restocking activities of certain miners that are strained for cash. In addition, we caution that volatility of raw material prices, in particular for steel rod could result in some margin volatility should Bridon not be able to pass these on through selling price increases in a timely fashion. Given these factors, Bridon's leverage is considered high at this point in time but positions the group solidly in the B3 rating category, as evidenced by pro forma Debt/EBITDA as adjusted by Moody's of around 7x. We expect Bridon however to gradually strengthen its financial metrics on the back of rising profitability and positive albeit modest free cash flow generation. The company has not produced pro forma audited consolidated financials for the past years. We had access to an auditor-provided due diligence report and audited accounts for major operating subsidiaries of the group.

The positive outlook reflects Moody's expectation that Bridon will be able to show profit improvements over the next 12-18 months, largely on the back of a recovery in the group's mining revenues and continued support from oil & gas as well as industrial activities. In addition, restructuring and cost savings as well as incremental profit generation from the acquisition of Scanrope should further support increasing profit levels. This should allow Bridon to improve its financial risk profile such that its Debt/EBITDA as defined by Moody's improves towards 6x over the next 12-18 months. The positive outlook is also built on our assumption of Bridon maintaining a solid liquidity profile following the refinancing with limited but positive free cash flow generation.

Following the proposed refinancing, we anticipate that Bridon's liquidity profile will be adequate. Internal sources include cash on hand of around GBP10 million pro forma for the refinancing and operating cash flow before working capital requirements of around GBP20-25 million. In addition, we note that Bridon will have access to a revolving credit facility amounting to USD40 million.

These sources should be sufficient to fund working cash requirements, estimated at around 3% of sales, as well as capex forecasted at around GBP8-10 million per year, with the RCF in place to support seasonal working capital swings and issuance of LoCs. We expect Bridon to continue to generate positive, albeit modest amounts of free cash flows. We note positively that following the proposed refinancing, Bridon will not have any material debt maturities apart from limited debt amortization and contractual cash sweep mechanisms before yearend 2019, when the revolving credit facility matures.

A higher rating would require Bridon to build a track record of profitability improvements that allows the group to materially deleverage. Quantitatively, Moody's would consider a positive rating action if Moody's adjusted Debt/EBITDA were to decline to 6x times with consistently positive free cash flow generation.

Negative pressure would build should Bridon's operating profitability decline from current levels of around GBP40 million of EBITDA with subsequently deteriorating leverage. A negative rating action could also be triggered by a weakening liquidity profile due to Bridon incurring material amounts of negative free cash flow and/or tightening covenant headroom.

STRUCTURAL CONSIDERATIONS

The (P)B2 ratings assigned to the proposed USD290 million senior secured first lien term loan and the USD40 million revolving credit facility is one notch above the group's corporate family rating. The rating on these instruments reflect their contractual seniority in the capital structure and benefits from a collateral package, consisting of a pledge over the majority of the group's assets as well as upstream guarantees from most of the group's operating subsidiaries, representing more than 80% of aggregate EBITDA. Lenders of the second lien term loan benefit from the same collateral and guarantee package, but on a subordinated basis, therefore the rating of the second lien term loan is two notches below the group's B3 corporate family rating at (P)Caa2.

Assignments:

..Issuer: Bridge HoldCo 4 Ltd

.... Corporate Family Rating, Assigned B3

.... Probability of Default Rating, Assigned B3-PD

..Issuer: Bridge Finco LLC

....Senior Secured Bank Credit Facility (Foreign Currency), Assigned (P)B2

....Senior Secured Bank Credit Facility (Foreign Currency), Assigned (P)Caa2

....Senior Secured Bank Credit Facility (Foreign Currency), Assigned a range of LGD3, 38 %

....Senior Secured Bank Credit Facility (Foreign Currency), Assigned a range of LGD6, 90 %

Outlook Actions:

..Issuer: Bridge Finco LLC

....Outlook, Assigned Positive

..Issuer: Bridge HoldCo 4 Ltd

....Outlook, Assigned Positive

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Bridon is a globally active manufacturer and supplier of specialist high quality wire rope. Key product lines include wire rope and strand, fibre rope and wire, specialist installations and inspection services, supplying global customers in the oil & gas, mining, industrial, marine and infrastructure sectors. The company focuses on safety or mission/performance critical ropes, requiring high technological know-how and innovation capabilities. In 2013, Bridon generated revenues of GBP 263 million. Bridon is currently in the process of being acquired through funds managed by Ontario Teachers' Pension Plan.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Anke Rindermann
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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