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Rating Action:

Moody's assigns Ba3 rating to Fluidra; stable outlook

15 Feb 2018

Milan, February 15, 2018 -- Moody's Investors Service, ("Moody's") today assigned a first time Ba3 Corporate Family Rating (CFR) and Ba3-PD Probability of Default Rating to Fluidra, S.A. ("Fluidra" or the "company"), a Spanish-listed multinational group serving the residential and commercial pool and wellness sector. Moody's also assigned a Ba3 (LGD 3) rating to the company's proposed EUR850 million equivalent senior secured term loan and EUR130 million Revolving Credit Facility (RCF). The outlook on the ratings is stable.

A full list of assigned ratings can be found at the end of this press release.

Fluidra is in the process of merging with Piscine Luxembourg Holdings 2 S.à r.l., a parent company of Zodiac Pool Solutions LLC (Zodiac, B3 positive), a global manufacturer of residential pool equipment and connected pool solutions. The proposed senior secured term loan and RCF, together with a USD230 million Asset-Based Lending (ABL) facility, are aimed at refinancing the debt structure of the integrated entity.

RATINGS RATIONALE

Fluidra's Ba3 Corporate Family Rating reflects the expected improvement in the company's business profile as a result of the pending merger with Zodiac. In particular, the rating reflects Fluidra's (1) leading market positioning in the residential pool equipment sector, as following the integration with Zodiac, the company will be among the top three players in each of the most relevant markets including North America and Europe; (2) good geographical diversification; (3) healthy profitability and cash flow generation; and (4) good liquidity.

Less positively, the rating also factors in Fluidra's narrow business focus as well as the high cyclicality of the end market, owing to the discretionary nature of spending for new swimming pool construction. This cyclicality is however mitigated by the large share of sales, approximately 64%, derived from the aftermarket segment that is more resilient during economic downturns. The rating also reflects some execution risks related to the merger with Zodiac and the planned cost synergies.

The Ba3 rating reflects the company's moderate leverage, with an expected Moody's adjusted gross debt/EBITDA at 4.1x pro forma for the merger and the proposed refinancing, and Moody's expectations that leverage will progressively decline towards 3.5x in the next 18-24 months. Moody's expects Fluidra's cash flow to remain solid in the next two years, with reported annual Funds From Operations (FFO) between EUR145 million and EUR155 million.

Pro forma for the transaction, Fluidra's liquidity comprises EUR60 million of cash on the balance sheet, a EUR130 million 6-year RCF, and a USD230 million (EUR190 million) ABL. The RCF and ABL are intended for working capital financing purposes. These liquidity sources, together with the expected FFO, should comfortably cover major cash needs, which Moody's expects to include (1) annual capex of around EUR50 million, (2) large working capital swings of up to EUR75 million, owing to the high seasonality of the business; and (3) the payment of some contingent liabilities related to previous acquisitions, estimated at approximately EUR15-20 million in the next 24 months.

STRUCTURAL CONSIDERATION

The Ba3 rating assigned to the proposed EUR850 million equivalent senior secured term loan and RCF is in line with the group's CFR, reflecting the fact that these facilities will rank pari passu among them and both will constitute the vast majority of the group's debt. The term loan and RCF will enjoy a first-priority pledge over substantially all of the group's tangible and intangible assets, other than receivables, inventory and cash, over which the ABL will have a first-priority pledge and the term loan and RCF will have a second-priority pledge.

Each of the term loan, the RCF and the ABL will be guaranteed by Fluidra and each of its material restricted subsidiaries. The RCF is subject to a springing financial covenant based on net leverage tested only if the RCF is drawn for more than 40%, for which we expect the company will retain ample headroom. We used a standard 50% recovery rate, because there are no maintenance financial covenants in the term loan and only springing covenants in the ABL and RCF.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that Fluidra's merger with Zodiac will position the company solidly in the global residential swimming pool market and that risks related to the merger are manageable. The stable outlook factors in a gradual reduction in leverage with Moody's adjusted gross debt/EBITDA trending towards 3.5x by 2019.

WHAT COULD CHANGE THE RATING UP

Ratings could be upgraded if the integration with Zodiac is completed successfully with evidence of improving performance as the combined entity reaps the benefits of enhanced scale and merger synergies with EBITDA margin (as adjusted by Moody's) trending towards 20% and adjusted gross debt/EBITDA reducing below 3.0x.

WHAT COULD CHANGE THE RATING DOWN

Ratings could be downgraded if the company' operating performance deteriorates as a result of difficulties integrating Zodiac and/or changes in demand dynamics, with Moody's adjusted gross debt/EBITDA increasing above 4.25x on a sustained basis, or if the company fails to maintain a good liquidity profile.

LIST OF ASSIGNED RATINGS

Issuer: Fluidra S.A.

Assignments:

....LT Corporate Family Rating, Assigned Ba3

....Probability of Default Rating, Assigned Ba3-PD

....BACKED Senior Secured Bank Credit Facilities, Assigned Ba3

Outlook Action:

....Outlook Assigned Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Consumer Durables Industry published in April 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Fluidra is a Spanish listed multinational group devoted to the pool and wellness sector, with a focus on developing leading products and applications for the commercial and residential pool markets. Fluidra is in the process of merging with Zodiac, a global manufacturer of residential pool equipment and connected pool solutions. The combined entity will keep Fluidra's name and public listing on the Spanish stock exchange, employ a workforce of 5,500 pool industry professionals and operate a global footprint stretching across more than 45 countries. For the last twelve months ended June 2017, the combined entity had pro forma sales and EBITDA of EUR1.3 billion and EUR210 million, respectively. Pro forma for the merger, the company's largest shareholders will be affiliates of Rhône Capital (42%) and Fluidra's founding families (29%).

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

Lorenzo Re
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yasmina Serghini
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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