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06 Nov 2006
Moody's rates Rental Service Corp.'s debt
Approximately $3.5 billion of Debt Affected
New York, November 06, 2006 -- Moody's Investors Service assigned a Ba2 first time rating to Rental Service
Corp.'s ("RSC") $1.7 billion first
lien senior secured credit facility ($1.3 billion revolving
credit facility and $400 million term loan), a B3 to the
company's $1.13 billion second lien senior secured
term loan, a Caa1 rating to the company's $620 million senior
unsecured notes, and a B2 corporate family rating. The ratings
for the three facilities reflect both the overall probability of default
of the company, to which Moody's assigns a PDR of B2,
and a loss given default of LGD 2 for the first lien secured facility,
LGD 4 for the second lien facility, and a LGD 6 for the unsecured
notes. Moody's also assigned a SGL-2 Speculative Grade
Liquidity Rating to RSC. The rating outlook is stable.
The purpose of the credit facilities is to fund the acquisition of RSC
by Ripplewood Holdings L.L.C. and Oak Hill Capital
Management LLC, (collectively the "Sponsors") for an
aggregate purchase price of $3.4 billion. The acquisition
is also funded with $250 million of equity from each of the Sponsors
and rollover equity of $85 million from Atlas Copco AB ("Atlas"),
the existing RSC owner.
Moody's said that RSC's B2 Corporate Family Rating reflects
its leading competitive position in the North American equipment rental
industry. The company is benefiting from the strong non-residential
construction market, which is the key to its financial performance
over the near to medium term. The strength of non-residential
construction activities has led to higher demand for rental equipment
and rising rental rates. However, the increased level of
debt resulting from the leveraged buyout will stress the company's
financial metrics. Key credit metrics will likely erode in the
following manner on a pro forma basis for 2006: EBIT/Interest expense
to 1.7x from 2.3x; EBITDA/Interest expense to 2.9x
from 3.9x; and, Debt/EBITDA to 4.30x from 3.6x
(as adjusted per Moody's FM Methodology). These credit metrics
position RSC as one of the more leveraged companies amongst its industry
peers. While meeting the debt service requirements of its leveraged
capital structure, RSC must also contend with the ongoing cyclicality
of the non-residential construction sector, and the need
to ultimately fund renewal of its rental fleet.
The stable outlook reflects Moody's belief that RSC's debt
protection measures should improve over the intermediate term and better
position the company within the B2 rating. RSC should be able to
weather future cyclical downturns due to its improved internal efficiencies,
its well established North American branch network, and a commitment
to maintain ample liquidity.
The Ba2 rating of the $1.7 billion first lien senior secured
credit facility reflects an LGD 2 (21%) loss given default assessment
as this facility is secured by a first lien pledge on substantially all
of the company's domestic assets and benefits from a significant
amount of junior debt ($1.75 billion or 50% of total
debt commitments) behind these facilities in priority. The B3 rating
of the $1.13 billion of the second lien senior secured term
loan reflects an LGD 4 (67%) loss given default assessment as this
facility is secured by a second lien pledge on substantially all of the
company's domestic assets and benefits from a sizeable amount of
junior debt ($620 million or 17% of total debt commitments)
behind this facility in priority. The Caa1 rating of the $620
billion of the senior unsecured notes reflects an LGD 6 (91%) loss
given default assessment as this facility is unsecured and the most junior
debt within the capital structure.
The SGL-2 Speculative Grade Liquidity Rating reflects Moody's belief
that the company will maintain a good liquidity profile over the next
12-month period. The SGL rating anticipates that approximately
$400 million in availability at closing under the company's proposed
first lien senior secured credit facility and free cash flow should be
sufficient to fund the company's capital spending and operational needs
over the next 12 months.
Corporate family rating B2;
Probability-of-default rating B2;
$1.3 billion senior secured revolving credit facility due
late 2011 at Ba2 (LGD 2, 21%);
$400 million senior secured term loan due late 2012 at Ba2 (LGD
$1.13 billion senior secured term loan due late 2013 at
B3 (LGD 4, 67%);
$620 million senior unsecured notes at Caa1 (LGD 6, 91%);
Speculative Grade Liquidity at SGL-2.
RSC, headquartered in Scottsdale, Arizona, is one of
the largest equipment rental companies operating in North America and
operates more than 450 locations throughout the United States and Canada.
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
No Related Data.
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