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I AGREE
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
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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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