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Global Credit Research - 16 Sep 2010
Approximately $155 million of proposed new credit facilities rated Ba3
New York, September 16, 2010 -- Moody's Investors Service assigned first time ratings to J.T.
Baker Holdings, S.A. (JTB) a specialty chemical manufacturer
(see list of proposed ratings below), for its proposed credit facilities
to recapitalize the recent acquisition of Mallinckrodt Baker, Inc..
The rating outlook is stable.
J.T. Baker Holdings, S.A.
Corporate Family Rating -- Ba3
Probability of Default Rating -- Ba3
J.T. Baker Holdings, Inc,.
$30 million Sr Sec Gtd Revolver due 2015 -- Ba3 (LGD4,
$125 million Sr Sec Gtd Term Loan due 2016 - --
Ba3 (LGD4, 51%)
Under the terms of the recapitalization JTB put into place a $155
million credit facility composed of a $30 million revolver and
a $125 million first lien term loan which will be used to refinance
a $110 million interim bridge facility. The sponsor an affiliate
of New Mountain Capital, LLC funded its initial acquisition of JTB
with $200 million of cash equity. JTB's ratings and
outlook are subject to review of the final documentation of the financing
and closing of the transaction as described.
JTB's Ba3 CFR reflects a relatively small revenue base (relative to much
larger competitors with better credit profiles), a relatively small
amount of tangible net worth under $60 million and since 2000 a
limited history operating as an independent company. Debt,
when adjusted for our standard adjustments, (including unfunded
pensions of $6 million and capitalized rents of $7 million)
is about $137 million, assuming no borrowings under JTB's
revolver. At this level of debt proforma leverage for the LTM period
ending June 30, 2010 would be about 2.5 times in a year with
record adjusted EBITDA generation approaching $55 million.
Despite its small size relative to competitors, JTB benefits from
a favorable brand image, long lived customer relationships,
and relatively small but stable order sizes. Many customer orders
are not subject to corporate approvals in the relatively steady laboratory
and pharmaceutical markets.
While JTB has a small business profile, the Ba3 rating benefits
from the less cyclical nature of the company's specialty chemical revenue
base, stable financial performance in recent years, and the
prospect of free cash flow generation. In addition, the rating
recognizes the potential benefits of reduced levels of capital spending,
running typically near 3% of sales that should aid in the generation
of free cash flow which will provide greater financial flexibility.
The rating outlook for JTB is stable. Factors that could have negative
rating implications include a failure to maintain historical margins and
steadily improve sales over time. While the company is subject
to significant customer concentration this will not be a significant business
risk unless there is deterioration in customer service excellence which
would drive clients to competitors. The presence of favorable environmental
protection for both on-site and off-site claims is viewed
positively. However the need for such support and its relative
complexity combined with the inherent uncertainty and surprises surrounding
environmental remediation could cause pressure on JTB's credit profile.
However as time passes and the environmental issues are successfully executed
concerns over unexpected outcomes would be mitigated. The 100 year
operating history of JTB at one of its largest sites provides fodder for
the possibility of unexpected environmental outcomes.
Factors that could have positive rating implications include successful
substantial improvement in financial performance and a sustainable track
record of operating with a conservative financial profile specifically
with regard to financing acquisitions.
JTB is a focused specialty chemical company that operates in three business
segments providing high purity chemicals to laboratories, pharmaceutical
companies and microelectronic industries. For the LTM period ending
June 30, 2010 business segment revenues totaling $438 million
were split into thirds. Gross profit margins on a combined basis
are near 25% but there is variation between the gross margins of
the three segments. The microelectronics business has the weakest
margins and pharmaceutical the strongest.
The Ba3 rating on the senior secured revolver and term loan reflects their
dominance as the sole debt in the company's capital structure and the
limited recovery prospects in a default situation where service and product
quality would likely be compromised. The facility will be secured
by a first priority lien on the capital stock as well as all domestic
assets of the company and its subsidiaries, and will be guaranteed
on a senior secured basis by all current and future domestic subsidiaries.
The principal methodologies used in rating J.T. Baker Holdings
S.A. were Global Chemical Industry published in December
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, parties not involved in the ratings,
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
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Please see the ratings disclosure page on our website www.moodys.com
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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
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba3 CFR to J.T. Baker Holdings
250 Greenwich Street
New York, NY 10007
No Related Data.
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