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25 Sep 2006
Moody's assigns Baa3 ratings to Service Corp's new credit facility and private placement notes
Approximately $650 million of newly rated debt securities
New York, September 25, 2006 -- Moody's Investors Service assigned Baa3 ratings to Service Corporation
International's (SCI) proposed $450 million senior unsecured
guaranteed credit facility ($300 million revolving credit facility
and $150 million term loan) and $200 million of guaranteed
senior notes. The ratings outlook is stable. The ratings
for these debt issues reflect both the overall probability of default
of the company, which is a PDR of Ba3, and a loss given default
assessment of LGD 2 for each of the debt issues.
Proceeds from the $150 million term loan, $200 million
of guaranteed senior notes, $500 million of senior non-guaranteed
notes and cash on hand will be used to finance the pending acquisition
of Alderwoods Group, Inc. (Alderwoods). The new $300
million revolver will replace an existing $200 million revolver.
No drawings are expected under the revolver, although availability
will be reduced by about $90 million of outstanding letters of
credit. The $200 million guaranteed senior notes are expected
to be privately placed.
Moody's recently rated SCI's proposed issue of $500
million of senior non-guaranteed notes (see press release dated
September 19, 2006).
Based on the preliminary results of the tender offer announced by SCI
in connection with its offer to purchase $144.5 million
aggregate principal amount of its outstanding 7.7% Senior
Notes due 2009 (CUSIP Numbers 817565AX2, 817565AV6 and 817565AW4),
Moody's expects to withdraw the B1 ratings on these notes upon completion
of the tender offer since only a de minimis amount will likely remain
$300 million senior unsecured term loan (guaranteed) due 2009 at
Baa3 (LGD 2, 11%)
$150 million senior unsecured revolver (guaranteed) due 2011 at
Baa3 (LGD 2, 11%)
$200 million senior unsecured notes (guaranteed) due 2011 at Baa3
(LGD 2, 11%)
For additional information on SCI, please refer to Moody's credit
opinion and speculative grade liquidity assessment published on Moodys.com.
The Baa3 ratings on the senior unsecured credit facility and private placement
notes reflect an LGD 2 loss given default assessment as these debt issues
are guaranteed by substantially all of the domestic operating subsidiaries
of the company and there is a significant amount of junior ranking debt
(about 70% of debt capitalization assuming a fully drawn revolver)
in the form of non-guaranteed unsecured senior notes.
The stable ratings outlook anticipates significant debt reduction with
the proceeds from asset sales and realization of meaningful cost reductions
within 18 months after the closing of the Alderwoods acquisition.
Revenues and profitability from the core funeral and cemetery operations
(excluding the impact of restructuring charges, asset sales and
synergies) are expected to grow modestly.
The ratings could be pressured if (1) the integration proves more difficult
than expected and anticipated merger synergies are not achieved;
(2) expected asset sales and related debt reductions are not completed;
(3) a material payment is required to settle outstanding litigation;
or (4) SCI adopts more aggressive financial policies than expected.
If any of these actions result in sustainable Debt to EBITDA of about
5 times and free cash flow to debt of less than 7%, a ratings
downgrade is possible.
Given the risks related to the merger and the extended time frame for
the realization of cost synergies, an upward change in the ratings
or outlook is not likely in the near term. However, the ratings
outlook could be changed to positive if greater than expected cost synergies
or debt reduction results in sustainable Debt to EBITDA and free cash
flow to debt approaching 3.5 times and 12%, respectively.
Service Corporation International is North America's largest provider
of deathcare products and services with revenues of about $1.7
billion in the twelve month period ending June 30, 2006.
As of June 30, 2006, SCI operated 1,041 funeral homes
and 351 cemeteries in 42 states and seven Canadian provinces. Alderwoods
operated 579 funeral homes, 72 cemeteries and 61 combination funeral
home and cemetery locations in North America as of June 17, 2006.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Lenny J. Ajzenman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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