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Rating Action:

Moody's stabilizes SRAM's outlook and rates new credit facility B1

14 Mar 2013

New York, March 14, 2013 -- Moody's Investors Service revised SRAM Corporation's ("SRAM") rating outlook to stable from negative due to improvement in SRAM's operating performance and credit metrics and Moody's expectation that credit metrics will get better as the company repays debt with free cash flow. At the same, Moody's rated SRAM's $725 million senior secured credit facility B1 and affirmed the B1 Corporate Family Rating. The credit facility is comprised of a $675 million term loan and a $50 million undrawn revolver.

Proceeds from the new credit facility will be used to repay the existing first lien term loan in full and all but $40 million of the second lien term loan. The SGL-3 speculative grade liquidity rating will be withdrawn as SRAM no longer files public financial statements.

"The outlook change reflects the improvement in SRAM's credit metrics over the last year and our view that metrics will continue getting better over the next 12 -18 months," said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service. For example, debt to EBITDA decreased by almost a turn since December 2011 to 5.4 times at December 2012 from 6.3 times and we think it will approach 5 times in 2013 and be below 5 times in 2014.

The following ratings were assigned:

$675 Million First Lien Term Loan at B1 (LGD 3, 45%);

$50 Million First Lien Revolver at B1 (LGD 3, 45%);

The following ratings were affirmed/LGD assessments revised:

Corporate Family Rating at B1;

Probability of Default Rating at B1-PD;

$185 Million Second Lien Term Loan at B3 (LGD 6, 91% from LGD 5, 86%);

The following ratings were affirmed, but will be withdrawn at close:

$605 Million First Lien Term Loan at Ba3 (LGD 3, 35%);

$50 Million First Lien Revolver at Ba3 (LGD 3, 35%);

The following rating is withdrawn:

Speculative grade liquidity rating at SGL-3

For additional information, please refer to our Credit Opinion of SRAM published on Moodys.com.

RATING RATIONALE

The B1 Corporate Family Rating reflects SRAM Corporation's ("SRAM") modest scale with about $630 million of revenue, narrow product focus in bicycle component parts, susceptibility to discretionary consumer spending, and weak (albeit improving) credit metrics with debt to EBITDA around 5.4 times. The ratings are also constrained by the company's history of shareholder friendly activities such as dividends and share repurchases as well as by the potential for future acquisitions. SRAM's rating benefits from its: 1) strong operating margins with EBITA to revenue around 20%; 2) adequate operating performance; 3) good market position within the bicycle component industry; 4) extensive product portfolio within the premium bicycle component segment; and 5) strong brand recognition among bike enthusiasts and dealers. The rating also benefits from the stable industry dynamics and the wide range of countries the company operates in, but it is constrained by SRAM's significant European revenue exposure at almost 50%.

The stable outlook reflects Moody's view that SRAM's operating performance and credit metrics should continue improving in the near to midterm.

The ratings are unlikely to be upgraded in the near term. This is because of SRAM's moderate size and soft credit metrics. SRAM's credit metrics need to be stronger than similarly rated consumer durables companies because of its size and history of aggressive financial policies. Key credit metrics necessary for an upgrade to be considered in the longer term would be debt to EBITDA approaching 3 times and interest coverage moving toward 4 times (currently 2.5 times).

Ratings could be downgraded if credit metrics do not improve as expected. For example, Moody's could downgrade the ratings if debt to EBITDA is sustained above 5.5 times or if EBITA margins fall to the low double digits. Another aggressive debt funded shareholder return in the next few years could also spark a downgrade.

The principal methodology used in rating SRAM was the Global Consumer Durables 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.

Headquartered in Chicago, Illinois, SRAM Corporation is a global manufacturer and designer of premium bicycle components. Revenue for the year ended December 31, 2012, approximated $630 million.

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 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 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 rating action, and whose ratings may change as a result of this 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.

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.

Kevin Cassidy
VP - Senior Credit Officer
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

Peter H. Abdill, CFA
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 stabilizes SRAM's outlook and rates new credit facility B1
No Related Data.
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