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Rating Action:

Moody's assigns first-time B2 rating to Assemblin Financing AB; outlook stable

25 Nov 2019

Stockholm, November 25, 2019 -- Moody's Investors Service ("Moody's") has today assigned a first-time B2 corporate family rating (CFR) and a probability of default rating (PDR) of B2-PD to Assemblin Financing AB (Assemblin), a Sweden-based provider of installation services mainly related to electricity, heating, sanitation and ventilation. Concurrently, Moody's has assigned a B2 rating to the proposed €250 million Senior Secured Bond. The outlook is stable.

Proceeds of the bonds will be used to repay existing debt of €161 million and to pay a dividend to the current owner, funds affiliated to Triton, of €93 million.

"The assigned B2 CFR and stable outlook balances the high initial Moody's-adjusted debt/EBITDA of 6.1x with the company's stable end market exposure and good regional market positions as well as clear expectations of profitability improvements and deleveraging in the next 12-18 months", says Daniel Harlid, Moody's lead analyst for Assemblin.

RATINGS RATIONALE

The B2 rating of Assemblin reflects as positive its; (1) Strong market position as Sweden's second largest provider of installation services; (2) asset-light service business with flexible cost structure enabling swift adjustments to shifts in the cycle; (3) short but meaningful evidence of margin expansion, albeit from a low base; (4) low exposure to new construction of residential buildings, a volatile sub sector of the construction market and (5) healthy exposure to recurring revenue from maintenance contracts, 36% of 2018 revenue.

However, the rating is constrained by; (1) High initial Moody's-adjusted debt/EBITDA of 6.1x (pro forma for acquisitions in 2019), however, inflated by pension deficit of SEK686 million, equivalent to 17% of Moody's-adjusted debt; (2) low reported EBITA margin of 4.7% compared to peers such as Bravida and Instalco; (3) high sales and EBITA concentration, with Sweden generating around 80% of both; (4) short track record with current management and under current ownership and (5) aggressive financial policy, as witnessed by the debt funded dividend to Triton after only four years of ownership.

LIQUIDITY

Assemblin's liquidity is adequate, supported by the cash balance of SEK308 million as of Q3 2019, a SEK450 million revolving credit facility (RCF) with a tenor of 5 years. These sources, together with internally generated funds from operations, will be used to cover intra-year working capital swings, with a build up during Q2 and Q3 and a subsequent release in Q4 and Q1. Other uses include annual capital expenditures of around SEK220 million -- SEK230 million, of which half relates to lease payments. The RCF includes a springing covenant which we expect to be set with ample headroom.

ESG CONSIDERATIONS

Governance risks mainly relate to the company's private-equity ownership which tends to create some uncertainty around a company's future financial policy. Often in private equity sponsored deals, owners tend to have higher tolerance for leverage, a greater propensity to favour shareholders over creditors as well as a greater appetite for M&A to maximise growth and their return on investment. For Assemblin, the contemplated dividend by its owner, Triton, will increase Moody's-adjusted debt/EBITDA from 4.7x end of 2018 to 6.1x end of 2019.

STRUCTURAL CONSIDERATIONS

Assemblin's contemplated capital structure will consist of a €250 million senior secured bond with a tenor of 5.5 years and a SEK450 million super senior secured RCF with a tenor of 5 years. The B2-PD is at the same level as the CFR, reflecting the use of a 50% firm-wide recovery rate, as is typical for transactions including both bonds and bank debt. The senior secured notes rated B2 are ranking behind the RCF with respect to recoveries upon enforcement.

Both instruments are guaranteed by the group's holding company Assemblin Holding AB and certain subsidiaries, which together account for at least 80% of consolidated EBITDA and are secured by pledges over shares in group companies and intercompany loans. Given the weak collateral value of such assets in a potential default scenario, the LGD analysis treat these instruments as unsecured.

OUTLOOK

The stable outlook assumes the company will continue to build positive momentum in its profitability, achieving a Moody's-adjusted EBITA-margin of 5.0%-5.5% within the next twelve months as well as positive free cash flow generation in 2020 and beyond. Supported by operating performance improvements, initial Moody's-adjusted debt/EBITDA of 6.1x pro forma for acquisitions made in 2019 is expected to be improved towards 5.5x by the end of 2021. The current rating doesn't factor in debt-funded M&A or additional dividend payouts.

FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE

Although unlikely for the time being, upward pressure on the ratings could come from

- Moody's-adjusted debt/EBITDA sustainably below 4.5x;

- A material improvement in operating performance with Moody's-adjusted EBITA margin increasing towards high single digits

- High single digit Moody's-adjusted free cash flow / Debt and preservation of a solid liquidity profile

Downward pressure on the ratings could result from

- Moody's-adjusted debt/EBITDA sustainably above 6.0x;

- Inability to improve Moody's-adjusted EBITA margins above 5%

- Negative free cash flow generation

- Signs of an even more aggressive financial policy, debt-funded M&A or a weakened liquidity profile.

PRINCIPAL METHODOLOGY

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.

Headquartered in Stockholm, Sweden, Assemblin is the second largest installation company in Sweden with installation services in electrical, heating & sanitation and ventilation. With 160 branches, of which 14 are in Norway and 16 in Finland, its 6000 employees serve various sub sectors of the Nordic construction industry. For the twelve months ending September 2019, the company reported revenue of SEK9.7 billion and EBITA of SEK436 million.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Daniel Harlid
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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