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Global Credit Research - 20 Jul 2010
Approximately $425 million of bank debt affected
New York, July 20, 2010 -- Moody's Investors Service assigned a Ba3 rating to the amended and extended
senior secured credit facility of Blount, Inc. The amendments
will increase the facility size to $425 million and extend its
maturities to 2015 for the revolver and to 2016 for the term loans.
Proceeds will be used to retire the company's existing debt,
including its remaining term loan balances and its $175 million
of senior subordinated notes (currently rated B2), all of which
mature in 2012. At the same time, Moody's affirmed
the company's Ba3 corporate family rating and assigned a B1 probability
of default rating. Blount, Inc. is a wholly-owned
subsidiary of Blount International, Inc. The rating outlook
The rating actions consider the company's solid market position in its
Outdoor Products segment; the high proportion of this segment's sales
going towards replacement markets, a factor which provides some
smoothing of the cyclicality inherent in the business; its heavy
and diversified mix of international sales (approximately 67% of
revenues); the strong turnaround in its performance that began in
the third quarter ended September 30, 2009; and reasonably
consistent cash flow generation, which has permitted the company
to de-lever considerably over the past six years.
At the same time, the ratings acknowledge the company's relatively
small size and the limited diversity of its end markets, which essentially
target consumers in one industry, outdoor equipment. This
concentration in a narrow end market that has difficult, but not
unassailable, barriers to entry magnify the risks inherent in economic
cycles as they impact manufacturers oriented towards the construction
and forest products sectors. In addition, Blount continues
to have exposure to volatile steel and energy prices.
The stable outlook reflects the elimination of the potential liquidity
events, all in 2012, that loomed over the company.
With the refinancing of the $175 million of senior subordinated
notes due in 2012 and the extension of the term loans to 2016, the
company has acquired substantial breathing room and, in addition,
will be able to make sizable optional reductions in the principal.
The Ba3 corporate family rating could be negatively impacted in the event
that the company's adjusted debt-to-EBITDA ratio exceeded
4.0x due to either diminished operating performance or increased
debt. Factors that could negatively impact operating performance
include higher product costs; prolonged weakness in the North American
and international end markets; and/or the loss of any portion of
business with its largest customers. Debt-financed acquisitions
or share repurchases could increase debt.
Factors that could have favorable rating implications include sustained
revenue growth, improvement in operating margins and free cash flow
generation resulting in further debt reduction such that both free cash
flow as a percentage of debt increases to over 15% and debt-to-EBITDA
declines to less than 3.5x on a sustainable basis; and/or
material growth in its tangible equity base.
The following ratings/assessments were affected:
Corporate family rating, affirmed at Ba3;
Probability of default rating, lowered to B1 from Ba3;
$75 million new senior secured revolver due August 2015 assigned
a Ba3 (LGD3, 31%);
$275 million new senior secured term loan due August 2016 assigned
a Ba3 (LGD3, 31%); and
$75 million new delayed draw senior secured term loan due August
2016 assigned a Ba3 (LGD3, 31%).
The ratings on the following securities will be withdrawn upon the close
of the transaction:
$60 million existing senior secured revolving credit facility,
due 2012, Ba1 (LGD2, 19%);
$103.5 million existing senior secured term loan,
due 2012, Ba1 (LGD2, 19%);
$3.9 million senior secured term loan, due 2010,
Ba1 (LGD2 19%); and
$175 million of 8 7/8% senior subordinated notes,
due 2012, B2 (LGD5, 82%).
The elimination of the up-notching of the ratings that had been
formerly assigned to the existing revolving credit facility and term loans
and the reduction in the Probability of Default rating reflect the following
factors: (i) elimination of the loss absorption that had been provided
by the senior subordinated notes, (ii) the move to an all first-lien
bank debt capital structure, which resulted in the use by Moody's
in its Loss-Given-Default framework of a 65% family
recovery rate (per the Moody's Loss-Given-Default
methodology) rather than the more common 50% family recovery rate,
and (iii) the use of the higher family recovery rate (65% rather
than 50%) implies a higher probability of default and therefore
a lower (B1) probability of default rating.
The senior secured bank credit facility benefits from the collateral package,
which consists of (i) a first priority interest in substantially all of
the assets of Blount and its domestic subsidiaries, (ii) a pledge
of Blount's capital stock (held by its parent, Blount International
Inc.), as well as 100% and 65%, respectively,
of the stock held at the company's domestic and foreign subsidiaries;
and (iii) upstream guarantees from domestic subsidiaries and downstream
guarantees from its parent company.
Moody's last rating action for Blount, Inc. occurred December
23, 2009, at which time Moody's affirmed the company's Ba3
corporate family and probability of default ratings, Ba1 on its
amended and extended senior secured credit facilities, and B2 rating
on its senior sub notes. The principal methodology used in rating
Blount, Inc. was Moody's Global Heavy Manufacturing Industry
rating methodology, published in November 2009, and available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Blount International, Inc., headquartered in Portland,
Oregon, is a manufacturer of outdoor products and gear-related
products. Revenues and net income for the trailing twelve month
period ended March 31, 2010, were $523 million and
$31 million, respectively.
Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's rates Blount's amended and extended sr. credit facilities Ba3
No Related Data.
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