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Rating Action:

Moody's upgrades Crosby's CFR to B3 from Caa1; outlook changed to stable from positive

30 May 2019

$695 million of rated new debt instruments

New York, May 30, 2019 -- Moody's Investors Service ("Moody's") upgraded the ratings of Crosby US Acquisition Corp. ("Crosby"), including the Corporate Family Rating ("CFR") to B3 from Caa1, the Probability of Default Rating to B3-PD from Caa1-PD and the existing first and second lien debt ratings to B2 and Caa2, respectively, from Caa1 and Caa3. Separately, Moody's assigned a B3 rating to the company's proposed senior secured first lien facilities, including a revolving credit facility due in 2024 and a term loan due in 2026. Moody's also changed Crosby's outlook to stable from positive.

Proceeds of the new $625 million first lien term loan will be used to refinance the company's existing first and second lien facilities due in 2020 and 2021. The ratings on the existing first and second lien debt will be withdrawn upon close of the refinancing transaction. The debt refinancing is occurring concurrent with Crosby's acquisition of Sweden-headquartered Gunnebo Industrier Holding AB ("Gunnebo"), a manufacturer of components for industrial lifting and rigging applications. The acquisition will be fully funded with equity from sponsor Kohlberg Kravis Roberts & Co. L.P. ("KKR").

RATINGS RATIONALE

The CFR upgrade recognizes the sustained improvement in operating performance that Moody's expects to continue over the next year, benefiting from positive fundamentals in key end markets in industrial manufacturing, construction and land-based oil & gas, and from improved production efficiencies. This should support moderately better credit metrics, including debt/EBITDA leverage that falls towards the mid 5x level through 2020 from the mid 6x range pro forma (Moody's adjusted). The upgrade is supported by no near term debt maturities, which will be pushed out by the debt refinancing to 2024, at the earliest, from 2020.

The B3 CFR reflects Crosby's high (albeit improved) financial leverage and debt burden for its operating profile, given exposure to cyclical and capital-intensive end markets, as well as competitive pressures. Event risk remains elevated with private equity ownership, including the potential for debt funded acquisitions or shareholder returns that increase leverage. As well, the fragmented and competitive nature of Crosby's markets increases the likelihood of bolt-on acquisitions, which could be funded with free cash flow or additional debt for sizeable targets, constraining the credit metrics. The company is also exposed to foreign exchange headwinds given about 40% of revenue is non-U.S. These factors are tempered by the company's strong brand recognition, global presence and diversification by product, customer and end market. The Gunnebo acquisition, which adds market breadth in lifting products, will increase Crosby's revenue scale by roughly one third and penetration in Europe, with potential synergies to be derived from areas such as facility and SG&A consolidation. However, it also presents integration risk and the product overlap is relatively high. Moody's expects Crosby to sustain healthy EBITA margins in the low 20% range over the next year, supported by positive demand fundamentals and cost savings from ongoing lean initiatives. Margins will nonetheless remain constrained in an environment of labor inflation and commodity cost headwinds (primarily for steel), including the potential negative effects of ongoing trade tensions and tariffs on market pricing. The good liquidity profile, including expectations of positive free cash flow of at least $20-$25 million, cash balances in excess of $60 million and an undrawn new $70 million revolving credit facility over the next 12-18 months, lends support to the rating.

The B3 rating assigned to the proposed first lien credit facilities, at the same level as the CFR, reflects the preponderance of this class of debt and Moody's expectation of recovery in the liability structure. The ratings on the existing debt facilities incorporate the impact of the CFR upgrade. As well, the B2 rating on the first lien debt, one notch above the CFR, reflects its senior priority of claim in the recovery waterfall and the first loss position of the second lien term loan. The Caa2 rating on the second lien, two notches below the CFR, reflects the subordination of the lien of this class of debt and its size in the liability waterfall.

Moody's took the following rating actions on Crosby US Acquisition Corp.:

Upgrades:

Corporate Family Rating, to B3 from Caa1

Probability of Default Rating, to B3-PD from Caa1-PD

Senior secured first lien revolver due 2020, to B2 (LGD3) from Caa1 (LGD3)

Senior secured first lien term loan due 2020, to B2 (LGD3) from Caa1 (LGD3)

Senior secured second lien term loan due 2021, to Caa2 (LGD6) from Caa3 (LGD6)

Assignments:

Senior secured first lien revolver due 2024, at B3 (LGD3)

Senior secured first lien term loan due 2026, at B3 (LGD3)

Outlook Actions:

Outlook changed to stable from positive

The stable outlook reflects expectations of at least mid-single digit revenue growth and margin expansion over the next year, supported by positive end market demand fundamentals that should continue into 2020. Moody's also expects Crosby to maintain good liquidity and metrics that continue to support the B3 CFR.

Downward ratings pressure could develop with deteriorating liquidity, including a decline in free cash flow generation or a reliance on revolver borrowings. If business conditions worsen and lead to weaker than expected credit metrics, including debt-to-EBITDA sustained at or above 6.5x, the ratings could be downgraded. A more aggressive financial policy, including debt-fund shareholder distributions or acquisitions that increase leverage, would also exert downwards rating pressure.

The ratings could be upgraded with sustained improvement in operating performance such that Moody's expects debt-to-EBITDA to be sustained below 5x, EBIT-to-interest above 1.5x and maintenance of good liquidity, including free cash flow to debt sustained at a high single-digit level.

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Crosby US Acquisition Corp, a subsidiary of Crosby Worldwide Ltd, is a manufacturer of highly-engineered lifting and rigging equipment, as well as customized material handling solutions. The company, based in Richardson, Texas, had annual revenues of approximately $331 million as of the fiscal year ended December 31, 2018. Pro forma for the acquisition of Gunnebo Industrier Holdings AB, revenues will approximate $445 million. Crosby is owned by affiliates of Kohlberg Kravis Roberts & Co. L.P. (KKR).

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.

Yvonne Njogu
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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