London, 11 April 2011 -- Moody's Investors Service has today assigned a B1 corporate family
rating (CFR) and a B2 probability-of-default rating (PDR)
to Frostbite 2 AB, the parent company of the Dometic bank borrowing
group. Moody's has also assigned a (P) Caa1 rating to the
proposed EUR200 million PIK Notes due 2019 to be issued by Frostbite 1
AB, the parent of Frostbite 2 AB. The outlook on the ratings
is stable.
A fund advised by EQT will use the proceeds from the PIK Notes,
together with about SEK5,700 million senior bank debt and SEK4,600
million shareholder funding, to purchase Dometic for about SEK 12billion.
The Enterprise Value of the transaction is about 9.2x on Moody's
adjusted EBITDA.
RATINGS RATIONALE
Moody's considers the purpose of the PIK Notes to be essentially
equity substitution. The (P) Caa1 rating on the Notes -- three
notches below the CFR - reflects the ringfencing of this instrument
from the Dometic bank borrowing group. The level of notching incorporates
Moody's expectation that, following a default of the Dometic
group, recoveries on the PIK Notes could be zero.
"Dometic's B1 CFR reflects the high leverage of the bank borrowing
group (excluding the PIK Notes) under the new capital structure,
and its exposure to cyclicality in its OEM divisions, says Tanya
Savkin, Moody's Assistant Vice President and lead analyst
for Dometic. "However, the assigned rating also incorporates
Dometic's leading position in a niche industry, its strong
brand and wide range of its product portfolio combined with attractive
market dynamics."
Dometic holds leading positions in its key geographies across a majority
of its products with approximately 75% of 2010 revenues generated
from product segments in which Dometic is the market leader or co-leader.
OEM channel contributed approximately 62% of its 2010 revenue,
with the rest represented by less cyclical and more profitable aftermarket
channel.
Pro-forma gross leverage post closing will be about 5.1x
for the bank borrowing group (about 6.4x including the PIK Notes).
Despite Dometic's high leverage in a relatively cyclical industry,
the stable outlook reflects Moody's expectation that the company
will achieve a significant deleveraging over the medium term through growth
across all of its businesses and in particular in its aftermarket division,
contributing to an eventual reduction in cyclicality.
In Moody's view, Dometic's liquidity profile is reasonable,
supported by the undrawn SEK600 million revolving credit facility,
undrawn SEK300 million CAPEX facility and solid cash flow generation.
Dometic's B2 PDR reflects the fact that the debt within the restricted
group is solely pari-passu bank debt. Maintenance financial
covenants under the senior bank facilities will be established with a
minimum headroom of approximately 25%. Dometic's exposure
to currency transaction risks will be partially mitigated by its ability
to draw on its bank facilities in currencies that reflect the group's
various exposures.
The PIK Notes mature in 2019, beyond the maturity of Dometic's
bank restricted group borrowings. They are structurally subordinated
to all indebtedness of Dometic's bank restricted group, and
are not guaranteed by, and do not have any creditor claim on,
the bank restricted group. In Moody's view, a default on
the Notes should not impact Dometic's bank restricted group.
Frostbite 1 may, at its sole option, pay interest on the Notes
in cash or in kind. Dometic's bank covenants permit distributions
to Frostbite 1 if leverage (excluding the Notes) falls below 2.25x;
and Frostbite 1 can distribute payments to shareholders if consolidated
leverage (including the Notes) falls below 3.75x.
Moody's understands that consolidated financial statements will
only be produced at the bank borrowing group level, by Frostbite
2 AB (so excluding the PIK Notes). Ratings guidance therefore excludes
the impact of the PIK Notes. Positive pressure on the ratings could
evolve if Dometic's total leverage falls to 4.0x, FCF
to debt ratio approaches 7% and EBITA to Interest expense ratio
reaches 3.0x. Conversely, negative pressure could
develop if, inter alia, the group fails to reduce total leverage
during 2011.
Moody's issues provisional ratings in advance of the final sale
of securities and these ratings reflect the rating agency's preliminary
credit opinion regarding the transaction only. Upon a conclusive
review of the final documentation, Moody's will endeavour
to assign a definitive rating to the term loan. A definitive rating
may differ from a provisional rating.
The principal methodology used in this rating was Global Manufacturing
methodology published in December 2010 and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in Sweden, Dometic is a leading manufacturer of leisure
products for the caravan, motor home, automotive, truck,
hotel and marine markets in almost 100 countries. The company operates
21 production facilities in 8 countries and sells its products under Dometic,
Waeco, Marine Air Systems, Condaria, Cruisair and Sealand
brands. Europe and the U.S. are the company's
key geographies, accounting for 87% of revenue for the year
ended December 31, 2010. The company's largest segment
is recreational vehicles (RVs), accounting for 57% of 2010
revenue. The company reported SEK7,958 million of sales and
SEK1,345 million of Adjusted EBITDA in 2010 and employed 6,441
people.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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
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and accurate based on the information that is available to it.
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Tanya Savkin
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
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London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
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Moody's assigns (P) Caa1 rating to Dometic PIK Notes (Frostbite 1 AB); stable outlook
