Approximately $2.95 billion of rated debt affected
New York, April 20, 2017 -- Moody's Investors Service affirmed its B2 Corporate Family Rating
(CFR) and B2-PD Probability of Default Rating for Advantage Sales
& Marketing, Inc. ("ASM"), and concurrently
assigned B1 ratings to the company's proposed $200 million
revolver and $225 million incremental term loan, both senior
secured (first lien) and due 2021. The B1 and Caa1 ratings for
the company's existing senior secured first and second lien term
loans, respectively, were also affirmed. The ratings
outlook is stable.
Proceeds from the proposed new term loan are expected to be used to finance
ten acquisitions in 2017 (three of which have already closed) for $97
million excluding fees, and to term out $55 million of existing
revolver borrowings and cover related fees and expenses. The balance
of approximately $68 million will be held in cash on the balance
sheet.
According to Moody's analyst David Berge, "The debt-funded
acquisitive nature of ASM is consistent with historical practice and remains
within the bounds of our current B2 CFR, particularly in consideration
of our expectation that the company will delever through earnings growth
and some debt repayment as it continues to evidence stable profitability
rates and generate in excess of $100 million in annual free cash
flow."
The following ratings have been assigned for Advantage Sales & Marketing,
Inc.:
$200 million senior secured first lien revolving credit facility
due 2021 at B1 (LGD3);
$225 million senior secured first lien term loan due 2021 at B1
(LGD3)
The following ratings have been affirmed for Advantage Sales & Marketing,
Inc.:
Corporate Family Rating at B2;
Probability of Default Rating at B2-PD
$1.95 billion senior secured first lien term loan due 2021
at B1 (LGD3)
$60 million senior secured first lien delayed draw term loan due
2021 at B1 (LGD3);
$760 million senior secured second lien term loan due 2022 at Caa1
(LGD5);
The following rating remains unchanged and will be withdrawn upon the
closing of the transaction:
Issuer: Advantage Sales & Marketing, Inc.
$200 million senior secured first lien revolving credit facility
due 2019 at B1 (LGD3)
RATINGS RATIONALE
ASM's B2 CFR reflects the company's elevated leverage (6.8 times
debt-to-EBITDA on a Moody's-adjusted basis,
excluding upcoming acquisitions, at the end of December 2016),
which remains high relative to similarly-rated business services
companies. The ratings also consider ASM's revenue concentration
among the company's top five customers, particularly in light
of the potential for large consumer packaged goods (CPG) manufacturers
and retailers to curtail spending in this industry. Also factored
into the ratings is ASM's growth strategy using debt-financed acquisitions
(such as those involved in the current set of transactions) and related
integration risks, its willingness to raise debt for identified
acquisitions before executing purchase agreements, and event risk
related to financial policies under its private equity ownership.
While earnings growth is anticipated, the company's strategy of
growth through acquisition will likely limit the use of free cash flow
for any meaningful future debt reductions.
ASM benefits from its position as one of the two largest sales and marketing
agencies (SMA) in the US, its base of large national accounts,
and broad service offering. The company has high customer retention
rates due to its market position, which continues to increase from
both organic growth and acquisitions, the potential switching costs
for its clients as ASM becomes more deeply integrated in clients'
business processes, and the conflict of interest for SMAs representing
competing clients or brands. Moody's expects ASM will continue
to benefit from new client and business wins, partially offsetting
the potential for pull-backs in spending by certain large CPG manufacturers,
while maintaining double-digit EBITA margins due to the highly
variable cost structure and continued realization of acquisition synergies.
Moody's recognizes the company's good liquidity, supported
by solid cash flow generation through the cycle due to the relative inelasticity
of demand for the products it represents, as well as for outsourced
sales and marketing services.
Moody's expects ASM to maintain a good liquidity profile over the
next 12 months, with expectations of more than $100 million
of annual free cash flow augmenting good cash balances (excluding committed
acquisition spending) and access to an undrawn $200 million committed
revolving credit facility that does not expire until 2021. The
term loans have no financial maintenance covenants, and the revolver
has a springing covenant requiring first lien net leverage to be maintained
below 8.25 times (almost double estimated proforma levels,
as defined) if availability falls below 30% of the total commitment.
Moody's expects the company to maintain sufficient headroom even
if required to satisfy the financial covenant.
The stable ratings outlook reflects Moody's expectation that ASM
will maintain or enhance its strong market position, which will
allow the company to grow revenue and earnings and thereby reduce leverage
to less than 6.5 times with some accompanying mandatory term loan
amortization over the next 12 to 18 months, absent additional debt
financed acquisitions or dividends.
Given ASM's highly leveraged capital structure, a rating upgrade
in the near term is unlikely. Ratings could be upgraded if the
company uses excess cash to prepay debt obligations such that debt-to-EBITDA
is sustained below 6.0 times. An upgrade would also require
a demonstrated commitment to more conservative financial policies with
regard to dividends and acquisitions.
ASM's ratings could be downgraded if debt-to-EBITDA is sustained
above 7.5 times, or if EBITA-to-interest falls
below 1.75 times. A deterioration in ASM's liquidity profile,
weaker-than-expected improvement in operating margins,
or a material contraction in revenue could also pressure the ratings.
Significant leveraging transactions to finance acquisitions or distributions
to the owners could also result in negative rating actions.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Advantage Sales & Marketing Inc. is a national sales and marketing
agency (SMA) in the US, providing outsourced sales, marketing
and merchandising services to manufacturers, suppliers and producers
of consumer packaged goods. In July 2014, affiliates of Leonard
Green & Partners, L.P. and funds advised by CVC
Capital Partners purchased a majority ownership stake in the company.
For the year ended December 31, 2016, management reported
unaudited revenues of approximately $2.08 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
David Berge
Senior Vice President
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
Russell Solomon
Associate Managing Director
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