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Rating Action:

Moody's assigns (P)B2 and (P)Ba1 rating to Edwards new bank debt

06 Mar 2013

London, 06 March 2013 -- Moody's Investors Service today assigned provisional (P)B2 and (P)Ba1 ratings to Edwards Group Limited's (Edwards) new US$ 560 million senior secured term loan and US$ 90 million super senior revolving credit facility. Moody's also affirmed the B1 Corporate Family Rating and B1-PD Probability of Default Rating, and maintained the stable rating outlook.

The new facilities will be taken out at Edwards (Cayman Islands II) Limited, a wholly owned subsidiary of Edwards, and will be guaranteed and secured by essentially the same group and assets as the bank debt that is being refinanced.

RATINGS RATIONALE

Moody's issues provisional ratings in advance of the final sale of securities and these reflect Moody's credit opinion regarding the transaction only. Upon a conclusive review of the final documentation Moody's will endeavour to assign definitive ratings. A definitive rating may differ from a provisional rating.

Moody's views the transaction as net credit-positive as it extends current maturities to 2020 for the US$ 560 million term loan and 2018 for the US$ 90 million revolving credit facility. In addition, it is expected to reduce Edwards' annual interest payments. Terms of the facilities permit greater flexibility to incur debt and pay dividends; however, Moody's expects the company's financial policy to focus on debt repayment over shareholder remuneration.

The (P)B2 rating on the company's term loan reflects its priority within the group's debt structure, ranking behind the super-priority revolver.

Edwards' overall revenue declined 15% in 2012 largely driven by its largest and very volatile Semiconductor segment (-12% in 2012) that saw reduced spending by key customers in the second half of 2012. Equally, the Emerging Technologies segment (-65%) suffered from continued overcapacity in solar and LED markets while flat panel display (FPD) manufacturers delayed investments. More positively, General Vacuum (GV) remained relatively stable (-2%) and the company continued to expand its stable Service business (5%) over 2012.

Despite the visible debt reduction of GBP 75 million in 2012 from cash flows, the weakened operating performance negatively impacted Moody's adjusted Debt/EBITDA and EBITA/Interest ratios, which approached 4.1x and 2.3x in 2012 respectively. Positively, the contemplated transaction is expected to reduce interest cost going forward.

In 2013, Moody's currently expects the situation to remain challenging overall and also potentially more difficult in GV as macroeconomic conditions weigh on various industries. However, revenues in Emerging Technologies which comprises FPD, LED and Solar spending, and Semiconductor are at record lows in the last quarter of 2012 and some of the investment could return over 2013. For example, FPD investments are forecasted to more than double in 2013 according to NPD DisplaySearch, a research group, and Edwards already confirmed the win of a large FPD order for 2013. In addition, some cautious optimism may be drawn from the expectation of overall growth in the semiconductor industry over 2013 of 4.5% from a 3.2% decline in 2012 (World Semiconductor Trade Statistics). On balance, Moody's would expect some improvements in 2013 from a weak second half of 2012 for rating maintenance.

Moody's considers the liquidity profile of Edwards to be good. As of December 2012, Edwards had GBP 98 million of cash and US$ 90 million available under its revolving credit facility following the amendment. This should be sufficient to accommodate the very limited debt amortization per year, working capital swings and temporary peaks in capital expenditure. Following the refinancing, the next large debt repayment will be the maturity of the US$ 560 million term loan in 2020.

The stable outlook reflects our expectation that Edwards financial policies will remain prudent and, in particular, that the company will not engage in any sizeable dividend payout or larger acquisitions that would put pressure on its credit metrics and currently good liquidity profile. It also assumes some improvements in operating performance over 2013 from a particularly weak second half of 2012.

Negative pressure on the ratings would increase if (i) operating performance weakens further over 2013; (ii) adjusted EBITA/Interest Expense remains below 2.5x; (iii) adjusted Debt/EBITDA rises sustainably above 4.5x; or (iv) concerns develop on the company's liquidity and/or if the company were to fail to maintain an adequate cash cushion of at least US$ 100 million.

Medium-term positive pressure on the ratings is limited due to the highly cyclical end-markets Edwards services and the focused product portfolio of Edwards. This said, positive momentum on the ratings could ensue should the company's performance experience sustained improvement in profitability such that adjusted Debt/EBITDA falls below 2.5x while generating steady positive free cash flow generation.

Edwards Group Limited, ("Edwards"), headquartered in Crawley / United Kingdom is a specialised manufacturer of highly engineered vacuum and abatement systems to a wide range of customers in the semiconductor, flat panel, solar PV, industrial, pharmaceutical, chemical, scientific, process, glass coating and food packaging industries. Edwards' products are also used for research and development purposes and are often an important component of its customers' production process. In 2012, Edwards generated revenues of GBP 595 million and company-adjusted EBITDA of GBP 114 million. Major shareholders are CCMP Capital and Unitas Capital that continue to own more than 80% of the company following its May 2012 IPO.

The principal methodology used in this rating was the Global Manufacturing Industry 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.

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.

Tobias Wagner
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Chetan Modi
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P)B2 and (P)Ba1 rating to Edwards new bank debt
No Related Data.
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