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Rating Action:

Moody's assign's a B2 CFR to Redflex Holdings proposed LBO; Outlook Stable

24 Mar 2011

$215 million proposed first lien credit facility rated

New York, March 24, 2011 -- Moody's Investors Service has assigned a B2 corporate family rating to Canberra Holdings II Corporation, the entity associated with The Carlyle Group and Macquarie Group under which the proposed first lien credit facility will be issued to fund, in part, the proposed LBO of Redflex Holding Limited (together "Redflex"). Concurrently, Moody's has assigned a Ba3 rating to the proposed $215 million first lien credit facilities. The rating outlook is stable.

The following ratings have been assigned subject to completion of the LBO and review of final documentation:

B2 Corporate Family Rating;

B2 Probability of Default Rating:

Ba3 (LGD3, 31%) on the proposed $20 million first lien revolving credit facility due 2016;

Ba3 (LGD3, 31%) on the proposed $175 million first lien term loan B due 2017; and

Ba3 (LGD3, 31%) on the proposed $20 million first lien delayed draw term loan due 2017.

On February 21, 2011 Redflex signed a Scheme Implementation Agreement under which it would be acquired for approximately $365 million by The Carlyle Group and Macquarie Group. Proposed financing for the transaction is expected to include the $175 million first lien term loan, a $75 million second lien term loan due 2018 (unrated), a $25 million Holdco PIK note due 2021 (unrated) and equity contributions by the sponsors.

RATINGS RATIONALE

The B2 CFR is supported by Redflex's high EBITDA margins, the predictability of its revenues and long tenured customer base as well as some highly visible growth prospects. These factors are balanced against a relatively aggressive initial capitalization, with leverage of roughly 5.5x, and high upfront costs to build new transportation safety camera systems. Redflex maintains a market leading position in the construction, daily operation and maintenance of municipal traffic safety systems in roughly 20 states throughout the United States. These systems have increasingly gained acceptance throughout the country due in large part to the their ability to improve public safety, the low cost to implement and the consistent revenue proposition they provide to the municipalities. Redflex has been a beneficiary of this growing demand and we expect this trend to continue given the strength of its market position.

Moody's anticipates that growth over the next two years in both the U.S., where Redflex bears the cost to build the system, and internationally, where Redflex generally installs the system and sells it to the government, will be funded through a combination of internally generated cash flow and proceeds from the proposed $20 million delayed draw term loan. The current ratings anticipate that the proposed revolver will remain largely undrawn over this timeframe.

The stable outlook reflects Moody's expectation that leverage will remain high over the intermediate term as the company allocates cash flow to growth initiatives. Further, Redflex is expected to manage its growth within the constraints of its existing liquidity profile.

The Ba3 ratings on the proposed first lien facilities reflect their first lien on substantially all of Redflex's U.S. assets and their seniority in the capital structure relative to the second lien term loan and the Holdco PIK note. The ratings also benefit from the flexibility afforded by Redflex's ability to PIK a portion of the second lien interest (and at times all of the second lien interest) and all of the interest associated with the Holdco PIK Notes. Covenants are expected to include both leverage and interest coverage ratios set with adequate cushion.

Moody's would view excessive reliance by Redflex on its revolver to fund growth as inconsistent with the current ratings and outlook. If such behavior persisted, ratings pressure would likely build. Further, the loss of a material contract or leverage sustained above 5.5x for an extended period could have negative rating implications. A ratings upgrade is not viewed as likely in the near term given the current leverage profile. A commitment to leverage below 4.0x coupled with a conservative liquidity profile would be viewed positively.

Redflex, located in Phoenix, Arizona and Melbourne, Australia, is a global traffic safety camera systems company that operates through two divisions. The U.S. division (77% of sales) is a leading photo enforcement owner and operator under a BOOM (build, own, operate, maintain) model. The international division (23% of sales) sells camera hardware, back-office processing equipment and software to cities, states and countries globally. The U.S. business is is viewed as more stable and generates substantially higher margins than the international business. Revenue for the twelve months ending December 31, 2010 were roughly $131 million.

The principal methodology used in this rating was Global Business & Consumer Service Industry Rating Methodology published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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.

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 Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Brian Grieser
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assign's a B2 CFR to Redflex Holdings proposed LBO; Outlook Stable
No Related Data.
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