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Rating Action:

Moody's downgrades Crosby's CFR to Caa2; stable outlook

25 May 2017

Approximately $715 million of rated debt

New York, May 25, 2017 -- Moody's Investors Service ("Moody's") downgraded Crosby US Acquisition Corp.'s (Crosby) Corporate Family Rating (CFR) to Caa2 from Caa1 and Probability of Default Rating (PDR) to Caa2-PD from Caa1-PD. Concurrently, Moody's affirmed the ratings on the senior secured first lien credit facilities at Caa1 and downgraded the senior secured second lien debt rating to Ca from Caa3. The ratings outlook is stable.

The ratings downgrade reflects Crosby's lower than expected operating performance, driven by an adverse operating environment from the recent trough in oil prices and weak industrial activity over 2015 and 2016. Depressed demand from the company's energy and industrial end market customers led to unprecedented revenue declines (by 40% since 2014) and weak EBITA margins in the low single digits, despite cost measures, resulting in negative annual free cash flow and very high financial leverage of over 10x (all metrics after Moody's standard adjustments). The leverage profile is inconsistent with a Caa1 rating. Moreover, although Moody's expects the credit metrics to improve moderately over the next year, given stabilizing conditions in certain end markets and anticipated efficiency gains, leverage is likely to remain elevated above 10x for the near term.

Moody's took the following rating actions:

Downgrades:

..Issuer: Crosby US Acquisition Corp.

.... Corporate Family Rating, to Caa2 from Caa1

.... Probability of Default Rating, to Caa2-PD from Caa1-PD

....Senior Secured Second Lien Bank Credit Facility due 2021, to Ca (LGD6) from Caa3 (LGD6)

Affirmations:

..Issuer: Crosby US Acquisition Corp.

....Senior Secured First Lien Revolver due 2018, at Caa1 (LGD3)

....Senior Secured First Lien Revolver due 2020, at Caa1 (LGD3)

....Senior Secured First Lien Term Loan due 2020, at Caa1 (LGD3)

Outlook Actions:

..Issuer: Crosby US Acquisition Corp.

....Outlook, Remains Stable

RATINGS RATIONALE

The Caa2 CFR balances Moody's expectation of high financial leverage above 10x and the company's exposure to capital-intensive and cyclical end markets, against its global presence, good customer and product diversification, and strong brand recognition in highly engineered industrial lifting and rigging equipment. Moody's also anticipates that margins will improve over the next year (incl. EBITA margin approaching 10%), supported by ongoing cost and manufacturing efficiency initiatives and moderate organic top line growth (at least in the mid-single digits), based on positive trends in backlog orders, higher domestic oil rig counts and expectation of modest growth in the industrial sector. Moody's believes the company is likely to yield greater savings from its efficiency initiatives after completion of its facility upgrades. This is expected to occur by the end of Q3 2017 with the benefits likely to become fully realized through 2018. The company's adequate liquidity also lends support to the ratings.

The adequate liquidity profile is characterized by an undrawn revolving credit facility with $65 million in commitments, good cash balances and no near term maturities for the majority of the debt structure. Moody's expect cash balances to be maintained in the $40 to $50 million range at a minimum over the next year. Moody's anticipates that capital expenditures will remain elevated as the company completes a major facility upgrade for which it has secured additional financing. Moody's believes cash balances, reported at $64 million as of December 31, 2016, and revolver availability should be sufficient to finance the company's cash outlays over the next 12 to 15 months. Moody's also expects Crosby to maintain good headroom under the springing first lien net leverage covenant, which applies if utilization exceeds 25% of the facility. There are no financial maintenance covenants on the rated term loans.

The one-notch downgrade of the senior secured second lien bank credit facility to Ca incorporates the impact of the lower CFR and Moody's expectation of recovery in the liability structure under Moody's Loss Given Default waterfall.

The stable ratings outlook is based on Moody's expectation that the company's credit metrics will improve modestly over the next year, benefiting from stabilizing fundamentals in the certain industrial end markets, including upstream energy, and efficiency gains. The stable outlook also anticipates that Crosby will maintain an adequate liquidity profile.

Downwards rating momentum could occur with a weakening liquidity position, including a reliance on revolver borrowings for working capital needs, or if Moody's expects free cash flow generation to deteriorate further. A continued decline in operating results, leading to further declines in margins and/or an increase in financial leverage could also pressure the ratings as could shareholder-friendly actions that compromise creditor interests.

The ratings could be upgraded if the company sustained an improvement in revenues and margins along with stabilizing to positive fundamentals across the company's end markets, such that Crosby demonstrated a capacity to maintain leverage below 8 times, EBITDA -- Capex / Interest above 1 times and at least an adequate liquidity profile.

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Crosby US Acquisition Corp, a subsidiary of Crosby Worldwide Ltd, is a manufacturer of highly-engineered lifting and rigging equipment, as well as customized material handling solutions. The company is based in Tulsa, Oklahoma and had annual revenues of about $275 million during the fiscal year ended December 31, 2016. The company is owned by affiliates of Kohlberg Kravis Roberts & Co. L.P. (KKR).

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.

Yvonne Njogu
Vice President - Senior 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

Robert Jankowitz
MD - Corporate Finance
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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