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Rating Action:

Moody's rates AIT Worldwide's first lien debt B2, CFR at B3; outlook stable

18 Mar 2021

New York, March 18, 2021 -- Moody's Investors Service, ("Moody's") assigned first-time ratings to AIT Worldwide Logistics Holdings, Inc. ("AIT") including a B2 to the $415 million senior secured first lien term loan and the $80 million revolving credit facility, a B3 corporate family rating (CFR), and a B3-PD probability of default rating (PDR). The ratings outlook is stable.

Proceeds from the $415 million first lien term loan, along with a $125 million second lien term loan (unrated) and cash equity, will be used to finance the purchase of a majority stake of AIT by the private equity firm The Jordan Company.

The following rating actions were taken:

Assignments:

..Issuer: AIT Worldwide Logistics Holdings, Inc.

.... Corporate Family Rating, Assigned B3

.... Probability of Default Rating, Assigned B3-PD

....Senior Secured 1st Lien Bank Credit Facility, Assigned B2 (LGD3)

Outlook Actions:

..Issuer: AIT Worldwide Logistics Holdings, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

AIT's ratings reflect the company's elevated financial leverage, moderate scale within a very competitive industry, and a strategy of debt-funded acquisitions which Moody's anticipates to continue. Moody's expects high financial leverage with about 6.5x debt/EBITDA for year-end December 31, 2020 on a pro forma basis for the company's new capital structure and recent acquisitions. This starting leverage profile under new ownership is high which, in Moody's view, reduces the company's capacity for sizeable acquisitions in the near-term at the present rating level.

Moody's expects a combination of steady earnings growth balanced by likely debt-funded acquisitions, albeit at a slower pace than previous years, will keep leverage near 6x debt/EBITDA over the next couple years. The segment of the logistics market that AIT operates in is highly competitive, yet fragmented, which provides AIT with many opportunities to grow inorganically and increase its scale.

AIT's credit profile benefits from the company's capabilities to provide varied modes of freight forwarding, including air, ocean and ground, a largely international presence to support global trade and customs brokerage and a very diverse set of customers and transportation providers. AIT provides services for customers operating in end markets with favorable growth prospects including e-commerce, life sciences, and technology. In addition, AIT maintains minimal exposure to any single carrier which allows for the company to procure competitive transportation rates. Moody's expects that AIT will be able to continue to pass on freight cost increases, especially for air freight which continues to be elevated at this time.

Moody's expects liquidity to be adequate as the $80 million revolver will initially be undrawn, and free cash flow will be moderately positive given the minimal capital expenditure requirements for the non-asset based business. Moody's anticipates that AIT will apply the majority of free cash flow toward acquisitions and may utilize the revolver as well for inorganic growth, which will at times reduce the company's liquidity.

In terms of corporate governance, event risk remains high for aggressive financial policies given private equity ownership and the company's acquisitive nature. Given the fragmented nature of the industry, further acquisitions are expected and could increase leverage or weaken liquidity depending on the pace and size of acquisitions.

The stable outlook reflects Moody's expectation for AIT to maintain financial leverage around 6x while continuing a prudent inorganic growth strategy. The outlook also anticipates that AIT will maintain an adequate liquidity profile, including positive free cash flow.

The B2 rating on the first lien senior secured credit facilities takes into account this debt's priority position ahead of the second lien term loan in the company's liability structure.

Below are proposed terms of the first lien credit agreement and the final terms can be materially different.

Preliminary terms in the first lien credit agreement contain provisions for incremental first-lien debt capacity up to 1) the greater of an initially set EBITDA level and 100% of consolidated EBITDA as defined over the prior four quarter period, plus 2) additional amounts subject to pro forma first-lien net leverage of 5.0x (if pari passu secured). In the case of additional junior secured debt, the secured net leverage ratio does not exceed 6.5x and for unsecured debt, the total net leverage ratio does not exceed 7.0x (or, if used to finance a permitted acquisition or permitted investment, such leverage tests in each case do not increase on a pro forma basis from initial levels).

The asset sale proceeds prepayment requirement has leverage-based step-downs to 50% and 0%, subject to pro forma first lien net leverage reaching 4.5x and 4.25x, respectively.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if AIT demonstrates a measured approach toward acquisitions such that the company maintains operating leverage to support EBITDA margins nearing 10% and debt/EBITDA sustained below 5x. Maintaining positive free cash flow generation with free cash flow-to-debt in the high single-digits range could also result in an upgrade.

The ratings could be downgraded if loss of customers from weakening execution, or if a debt-funded acquisition strategy in excess of what the company has historically demonstrated result in financial leverage approaching 7x debt/EBITDA. In addition, the ratings could be downgraded if AIT is unable to generate positive free cash flow or availability on its revolving credit facility is materially reduced.

AIT Worldwide Logistics Holdings, Inc., based in Chicago, IL, is a global third party logistics company providing end-to-end supply chain services, including air and ocean freight forwarding, expedited ground, truck brokerage, residential delivery, customs brokerage, and other value-added logistics services. Pro forma gross revenues were approximately $1.1 billion for the year ended December 31, 2020.

The principal methodology used in these ratings was Surface Transportation and Logistics published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113382. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Mike Cavanagh
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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