$400 million of new debt securities rated
New York, November 06, 2012 -- Moody's Investors Service downgraded Osmose Holdings, Inc.'s
("Osmose") Corporate Family Rating ("CFR") to
B2 from B1, affirmed the B2 Probability of Default Rating,
and assigned B2 ratings to the company's proposed first lien senior
secured credit facilities. These actions follow the company's
announcement of a proposed dividend recapitalization transaction.
The rating outlook is stable.
"The dividend recapitalization would increase debt leverage,
loosen protective covenants, and enable the company to pursue acquisitions
more aggressively than contemplated by the existing B1 rating,"
said Moody's analyst Ben Nelson.
The proposed transaction increases funded debt to $315 million
from $255 million to facilitate a return of capital to the company's
private equity sponsor, which increases adjusted financial leverage
to the mid 4 times Debt/EBITDA area from the mid 3 times area for the
twelve months ended June 30, 2012. The transaction also adds
a $40 million committed delayed draw term loan to fund a potential
business acquisition. If unused during the first three months,
the delayed draw term loan facility will terminate. Credit terms
are expected to loosen considerably in the new structure, including
the elimination of financial maintenance covenants (except for a new springing
net senior secured leverage ratio test that applies only to the revolving
credit facility) and greater flexibility to add additional pari passu
and junior-ranking debt. The rating downgrade acknowledges
these factors and provides management with more flexibility to pursue
expansionary activities.
Today's actions:
..Issuer: Osmose Holdings, Inc.
.... Corporate Family Rating, Downgraded
to B2 from B1
.... Probability of Default Rating,
Affirmed B2
.... $45 million Senior Secured Revolving
Credit Facility due 2017, Assigned B2 (LGD4 53%)
.... $315 million Senior Secured Term
Loan B due 2018, Assigned B2 (LGD4 53%)
.... $40 million Senior Secured Delayed
Draw Term Loan due 2018, Assigned B2 (LGD4 53%)
.. Outlook, Stable
The assigned ratings are subject to Moody's review of final terms and
conditions of the proposed transaction, which is expected to close
in the fourth quarter. The company's existing bank debt ratings
will be withdrawn at closing.
RATING RATIONALE
The B2 CFR is constrained by modest size, challenging operating
conditions in the cyclical wood treatment business, and expectations
that an aggressive growth strategy could limit free cash flow generation.
In addition, notwithstanding the company's hedging program,
its exposure to fluctuations in copper prices in its wood treatment business
could create some volatility in earnings and cash flow. The rating
considers favorably the company's good market positions, long-term
contracts, relative demand stability within the service businesses,
and a good liquidity position. The rating also incorporates our
expectation that the private equity sponsor will provide assistance in
improving financial systems and risk management policies.
The stable rating outlook assumes that Osmose will continue to benefit
from improvement in its services businesses, navigate successfully
challenging conditions in its wood preservation business, and generate
positive free cash flow over the next twelve-to-eighteen
months. While challenging business conditions have pressured returns
in the wood preservation business, the segment has benefited from
increased volumes contributing to improved earnings, and the service
businesses continue to perform well.
Moody's could downgrade the CFR with expectations for leverage above
5 times, negative free cash flow, or deterioration in the
company's liquidity position. An upgrade is unlikely in the
near-term; however, Moody's could upgrade the
ratings with expectations for leverage sustained below 4 times through
economic cycles and a commitment to more conservative financial policies.
The principal methodology used in rating Osmose Holdings, Inc.
was the Global Business & Consumer Service Industry Rating Methodology
published in October 2010. Other methodologies used include Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Osmose Holdings, Inc. is a provider of utilities and railroad
infrastructure services, and a manufacturer and marketer of wood
preservation chemicals. Osmose is owned by investment funds managed
by private equity sponsor Oaktree Capital Management, L.P.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Benjamin Nelson
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's rates Osmose's new credit facilities B2; CFR lowered to B2
