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Rating Action:

Moody's changes Wastequip's outlook to negative; B2 CFR affirmed

28 Feb 2019

Approximately $395 million of rated debt affected

New York, February 28, 2019 -- Moody's Investors Service ("Moody's") affirmed its ratings for Patriot Container Corp. (dba "Wastequip"), including the company's B2 Corporate Family Rating (CFR) and B2-PD Probability of Default rating, and the B1 and Caa1 ratings for the first and second lien credit facilities, respectively. The outlook was changed to negative from stable.

The change in outlook to negative follows the announcement by Wastequip that it has entered into a definitive agreement to acquire Amrep, Inc. ("Amrep"), a garbage truck and hoist manufacturer. The company plans to fund the acquisition from a combination of revolver borrowings and use of a new receivables factoring program.

"The acquisition of Amrep offers Wastequip the benefits of inorganic growth including an expanded product offering, but it limits the company's financial flexibility to absorb unanticipated business disruptions -- acquisition related or otherwise -- until the revolver is repaid," said Andrew MacDonald, senior analyst at Moody's. "The company needs to build liquidity while reducing leverage to maintain current ratings."

The following ratings have been affirmed at Patriot Container Corp.:

Corporate Family Rating, B2

Probability of Default Rating, B2-PD

$50 million Gtd Senior Secured First-Lien Revolving Credit Facility due 2023, B1 (LGD3)

$265 million Gtd Senior Secured First-Lien Term Loan due 2025, B1 (LGD3)

$80 million Gtd Senior Secured Second-Lien Term Loan due 2026, Caa1 (LGD5)

Outlook, changed to negative from stable.

RATINGS RATIONALE

Wastequip's B2 CFR broadly reflects its high financial leverage, with Moody's adjusted debt-to-EBITDA in the low 6.0 times for the twelve months ended September 30, 2018 (pro forma for the Amrep acquisition). The rating also considers the potential for aggressive financial policies underpinned by a long history of financial sponsor ownership, its small scale in terms of revenue relative to the rated manufacturer universe, and a concentration in the waste handling and recycling equipment sector. The company's liquidity, while adequate, is expected to be constrained through 2019 given the heavy reliance on the revolver to fund the acquisition of Amrep. However, the company intends to repay revolver borrowings during 2019 from internally generated free cash flow throughout the year which will improve leverage and revolver availability. The company's earnings growth could be tempered by soft demand for products tied to end markets like oil & gas and mining, which could slow the level of expected improvement. The rating is also constrained by potential revenue volatility due to the timing of project based wins and moderate customer concentration.

However, the rating is supported by Wastequip's leading position within the highly fragmented waste handling and storage space, and the meaningful market share held by the company across its different product lines. The acquisition of Amrep also bolsters the company's already wide range of product offerings and exposure to a diversified set of end markets. The rating is also supported by Moody's expectation that Wastequip will improve its free cash flow which will allow it to repay debt and strengthen liquidity.

The negative outlook reflects the risk that Wastequip will be unable to improve its liquidity by increasing its free cash flow generation and availability under its $50 million revolving credit facility, in concert with a modest reduction in its high financial leverage over the next twelve months. The outlook could be changed to stable if the company is able to reduce leverage below 6 times while improving its total available cash and revolver availability to at least $50 million.

Ratings could be downgraded if debt-to-EBITDA is expected to be sustained above 6.0 times beyond 2019, free cash flow-to-debt falls below 3% and/or liquidity weakens further. Increased reliance on revolver borrowings, a sizable debt-financed acquisition or dividends could also result in the ratings being downgraded.

While unlikely near term, factors that could warrant consideration of an upgrade include financial policies supportive of debt-to-EBITDA being sustained below 4.5 times, free cash flow-to-debt approaching 9%, and at least a good liquidity profile is maintained.

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Wastequip is a leading manufacturer of waste handling and recycling equipment used to collect, process, and transport solid and liquid waste in North America. The company manufactures a range of waste handling products including plastic residential containers, industrial containers of various sizes, hoists, tarpers, vacuum vehicles, compactors and balers. Following the proposed transaction, the company will be majority-owned by financial sponsor H.I.G. Capital. Management reported revenue excluding the Amrep acquisiton for the twelve-month period ended September 29, 2018 was $530 million.

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 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.

Andrew MacDonald
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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