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Rating Action:

Moody's assigns a B3 CFR to Culligan for LBO; Outlook Positive

02 Nov 2016

Approximately $600 million of rated debt affected

New York, November 02, 2016 -- Moody's Investors Service ("Moody's") today assigned Culligan Holding, Inc. ("Culligan") a Corporate Family Rating (CFR) and Probability of Default Rating (PDR) of B3 and B3-PD, respectively. In addition, Moody's assigned a B2 rating to the company's newly proposed 1st lien credit facilities, which will consist of a $75 million 5-year revolving credit facility and a $375 million 7-year 1st lien term loan (with up to $100 million Euro equivalent tranche). At the same time, Moody's assigned a Caa2 rating to the company's newly proposed $150 million 8-year 2nd lien term loan. The rating outlook is positive.

Culligan is in the process of being acquired in a sponsor to sponsor LBO transaction where Centerbridge Partners, L.P. is selling the business to Advent International Corporation for an acquisition price of approximately $915 million ex-fees, OID and expenses of approximately $20 million. The acquisition price represents roughly an 11 times multiple to the company's LTM September 30, 2016 PF management calculated adjusted EBITDA. The acquisition will be funded with proceeds from the 1st and 2nd lien term loans together with roughly $420 million of sponsor equity (including management equity). Also, approximately $10 million of cash will go to Culligan's balance sheet in connection with the transaction.

According to Moody's AVP - Analyst Brian Silver, "Culligan's high leverage and relatively small size are key constraints on the company's ratings. However, favorable qualitative factors bode well for Culligan's future performance, including the company's strong brand awareness stemming from its 80 year history, solid positioning in the global water treatment market that is benefitting from favorable tailwinds, and relatively high degree of recurring revenues. We expect credit metrics to improve over the next 12 to 18 months driven by EBITDA growth and some voluntary debt repayment, and anticipate leverage will approach the 5.5 to 6.0 times range over this period."

The following ratings have been assigned at Culligan Holding, Inc. (subject to final documentation):

B3 Corporate Family Rating;

B3-PD Probability of Default Rating;

B2 (LGD3) to the $75 million senior secured first lien revolving credit facility due 2021;

B2 (LGD3) to the $375 million senior secured first lien term loan due 2023;

Caa2 (LGD5) to the $150 million senior secured second lien term loan due 2024;

The outlook is positive.

RATINGS RATIONALE

Culligan's B3 Corporate Family Rating reflects its high leverage of approximately 6.4 times Moody's adjusted debt-to-EBITDA for the twelve months ended September 30, 2016 (pro forma for its pending LBO) as well as its relatively small size and potential for competition to pressure top-line growth. The rating also incorporates Moody's expectation that over the next twelve to eighteen months the company will organically grow its top-line in the mid-single digit range while at least sustaining its healthy margin levels, which will drive EBITDA growth and positive free cash flow generation. We expect a healthy portion of this cash flow to be allocated toward debt repayment, and in concert with EBITDA growth, result in the company deleveraging and approaching the mid-to-high 5.0 times range by FYE17. The rating is supported by the company's solid market position in the highly fragmented global water equipment market, which is strengthened by its strong brand recognition, the recurring nature of roughly 70% of its revenues, and its good geographic diversification profile. The company's liquidity is good, largely stemming from access to external liquidity via its $75 million revolving credit facility, and we expect reliance on the facility to be limited over the next twelve to eighteen months.

The positive outlook reflects Moody's expectation for improvement in credit metrics driven by moderate earnings growth in concert with debt repayment over the next twelve to eighteen months.

The ratings could be downgraded if the company does not deleverage as anticipated such that debt-to-EBITDA increases and is sustained above 7.0 times. Also, if liquidity weakens and revolver borrowings increase, the ratings could face downward pressure. Alternatively, the ratings could be upgraded if the company is able to achieve solid organic revenue and EBITDA growth such that debt-to-EBITDA is sustained below 5.5 times, reflecting a longer track record of successfully deleveraging. In addition, the company must maintain at least a good liquidity profile for an upgrade to be considered.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Culligan Holding, Inc. ("Culligan"), headquartered in Rosemont, Illinois, is a global manufacturer and distributor of water treatment products and services for household, commercial and industrial applications. Culligan is ultimately a wholly-owned subsidiary of Al Aqua Sárl (Parent and Guarantor). The company has a large presence in North America through its franchise business model, but generates the majority of its revenues internationally, where the company has franchise, company owned and licensee arrangements. Culligan is in the process of being acquired by private equity firm Advent International Corporation (Sponsor) from private equity firm Centerbridge Partners, L.P. for $915 million. Culligan generated revenues of approximately $436 million during the twelve months ended September 30, 2016.

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.

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.

Brian Silver
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

No Related Data.
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