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25 Jun 2010
Approximately $270 million of newly rated debt affected
New York, June 25, 2010 -- Moody's Investors Service assigned a B3 rating to Phibro Animal
Health Corporation's ("Phibro") proposed $270
million senior unsecured notes and affirmed existing ratings including
the company's B2 corporate family rating. The ratings outlook
The B2 corporate family rating continues to reflect the company's
small size, relatively high debt leverage, concentration in
the animal health and nutrition end markets, and aggressive financial
policy. We estimate Phibro's debt leverage to remain above
4 times in fiscal 2011. Phibro's sales are concentrated in its
animal health and nutrition business, representing approximately
86% of product sales. Within the animal health and nutrition
segment, Medicated Feed Additives (MFAs) represent approximately
36% of total sales. Further, the B2 corporate family
rating considers industry and company specific risks including overall
competitive environment, regulatory restrictions on the use of MFAs,
governmental restrictions on manufacturing and approval of new products,
potential outbreaks of animal diseases, raw material costs,
and currency fluctuations.
The B2 rating acknowledges the company's relatively stable revenue
stream and global agricultural sector expansion. Further,
the rating considers the company's good liquidity position as evidenced
by projected positive free cash flow generation and ample revolver availability.
The stable outlook incorporates our expectation for a modest end market
growth that translates into flat to slightly improving credit metrics
over the next year. In addition, the stable outlook takes
into consideration projected good liquidity position throughout the next
The proceeds of the $270 million senior unsecured notes are primarily
being used to refinance the company's outstanding $160 million
10% senior unsecured notes, due 2013 and $80 million
13% senior subordinated notes, due 2014. The proposed
senior unsecured notes will be guaranteed by each of Phibro's existing
and any future domestic restricted subsidiaries on a senior unsecured
basis. However, the notes will not be guaranteed by foreign
subsidiaries and as of March 31, 2010, the foreign subsidiaries
held 56% of the company's assets. Subsequent to the
closing of the refinancing transaction, the company plans on entering
into a new $75 million domestic senior secured revolving credit
facility, due 2014 which will replace its existing $75 million
revolving credit facility, due in July 2011. In addition,
after entering into the new credit facility, the company intends
to make a dividend distribution to common shareholders in the amount of
$50 million. The primary funding source for the dividend
is cash on hand that the company received from the sale of its wood preservatives
Upon closing of the refinancing transaction as proposed, Moody's
will withdraw the ratings on the $160 million senior unsecured
notes, due 2013 and $80 million senior subordinated notes,
due 2014. The rating on the proposed $270 million senior
unsecured notes is subject to the review of final documentation.
For additional information, please refer to our Credit Opinion on
Phibro on www.moodys.com.
The following rating actions were taken:
Proposed $270 million senior unsecured notes, due 2018,
assigned B3 (LGD4, 59%);
Corporate family rating, affirmed at B2;
Probability of default rating, affirmed at B2;
$160 million senior unsecured notes, due 2013, affirmed
at B2, LGD assessment changed to LGD3, 49% from LGD3,
$80 million senior subordinated notes, due 2014, affirmed
at Caa1, LGD assessment changed to LGD6, 91% from LGD5,
The last rating action on Phibro Animal Health Corporation was when the
senior unsecured note rating was raised to B2 from B3 and the B2 probability
of default rating was assigned on September 21, 2006.
Phibro's ratings were assigned by evaluating factors we believe are relevant
to the credit profile of the issuer, such as i) the business risk
and competitive position of the company versus others within its industry,
ii) the capital structure and financial risk of the company, iii)
the projected performance of the company over the near to intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of Phibro's core industry and Phibro's ratings are believed to be comparable
to those of other issuers of similar credit risk.
Phibro Animal Health Corporation is a diversified manufacturer and marketer
of animal health and nutritional products, and performance products.
Revenues for the trailing twelve month period ended March 31, 2010,
were approximately $586 million.
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
Corporate Finance Group
Moody's Investors Service
Moody's rates Phibro's proposed unsecured notes at B3; affirms ratings
No Related Data.
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