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Rating Action:

Moody's assigns Ba2 rating to Colfax term loan; outlook is negative

27 Feb 2013

Approximately $1.5 billion of debt affected

New York, February 27, 2013 -- Moody's Investors Service assigned a Ba2 rating to Colfax Corporation ("Colfax") new Term Loan A-4 and affirmed the company's Corporate Family and Probability of Default Ratings at Ba3 and Ba3-PD, respectively. The ratings on its expanded US based $300 million revolver (upsized from $100 million) and on its $200 million multi currency facility, and on the company's Term Loan B remain at Ba2. The rating outlook was changed to negative from stable.

The change in outlook reflects the company's high leverage and operating performance that has remained well below our expectations. Operating results have been pressured by delays in implementing restructuring initiatives and by economic weakness in European markets.

RATINGS RATIONALE

Colfax is weakly positioned in the Ba3 CFR rating category due to its high leverage, with debt/EBITDA in high 4 times based on Moody's standard adjustments which consider its operating leases, and underfunded pension liabilities. Although the company's interest expense will decline due to recent refinancing and its leverage metrics will benefit from the $200 million debt paydown, the company's leverage still remains elevated in Moody's view and the general outlook for its business remains challenging particularly given the weak European economies.

Moreover the negative rating outlook reflects Moody's view that the company's sales, margins, and deleveraging efforts have been weaker than previously anticipated by Moody's when it assigned the Ba3 CFR rating. Moreover, leverage is expected to remain elevated for much of 2013.

The affirmation of the company's Ba3 CFR reflects the expectation that management will remain focused on working capital reduction, productivity enhancements and that these efforts may be sufficient to maintain the Ba3 CFR. Moody's continues to believe that the management structure and investor base combined with strong global product platforms increases the likelihood that the company will perform well when the global economy improves.

The Ba2 rating on Colfax Corporation's senior secured credit facilities is one notch above the corporate family rating due to their senior priority of claim in the capital structure and the support from the junior capital in the form of various unsecured obligations including pension liabilities and trade claims. The revolver, various term loan A facilities, and term loan B are all secured on a first lien basis although by various assets but benefit from the security package that is subject to a collateral allocation mechanism.

The Ba2 assignment on the Term Loan A-4 has the company's Colfax Corporation (the US borrower) as is the case with the Term loan A-1 and term loan B. The term loan A-2 and A-3 have certain Colfax European operations as the borrower.

Assignments/Affirmations:

..Issuer: Colfax Corporation

....Senior Secured Bank Credit Facility, Assigned/Affirmed Ba2 LGD3-32% from Ba2 LGD3- 41%

..Issuer: Colfax UK Holdings Ltd

....Senior Secured Bank Credit Facility, Affirmed Ba2 LGD3-32% from Ba2 LGD3- 41%

Outlook Actions:

..Issuer: Colfax Corporation

....Outlook, Changed To Negative From Stable

..Issuer: Colfax UK Holdings Ltd

....Outlook, Changed To Negative From Stable

Colfax Corporation's SGL-3 Speculative Grade Liquidity rating remains unchanged and reflects Moody's expectations that the company will maintain adequate liquidity over the next twelve months. The liquidity profile is supported by initial cash balances anticipated at over $200 million, and $500 million of total combined revolver size of which over $300 is anticipated to be available in 2013 due in part to the expansion of its US revolver. The company is anticipated to have good room under its covenants but is believed to have limited forms of alternate liquidity as its assets are secured by the bank credit facilities.

The ratings are not anticipated to experience positive ratings traction over the short term. If leverage on a Moody's adjusted basis were expected to improve beyond 4.3 times, the ratings outlook could revert to stable. Moreover, were the company's leverage to decrease to under 3.5 times and free cash flow available for debt reduction anticipated at over 12% annually, positive ratings traction could occur.

The ratings may be downgraded if the company does not make meaningful progress so that its year-end 2013 leverage is anticipated to be under 4.3 times on a fully adjusted basis.

The principal methodology used in rating Colfax was the Global Manufacturing Industry Methodology published in December 2010. 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.

Colfax, headquartered in Fulton, Maryland, is a diversified global industrial manufacturer of pumps, fluid-handling systems, specialty valves, fabrication technology solutions and lubrication systems. Total revenues for 2012 were approximately $3.9 billion.

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.

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.

Paul Aran
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba2 rating to Colfax term loan; outlook is negative
No Related Data.
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