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Rating Action:

Moody's upgrades Form Technologies' CFR to B3 and assigns B2 and Caa2 ratings to secured first-out and last-out term loan ratings, respectively.

08 Feb 2021

Approximately $915 million of rated debt affected

New York, February 08, 2021 -- Moody's Investors Service, ("Moody's") upgraded the ratings for Form Technologies LLC, including the corporate family rating (CFR) and probability of default ratings to B3 and B3-PD, respectively. Concurrently, Moody's assigned a B2 rating to the company's proposed first-lien first-out senior secured credit facilities and Caa2 rating to its first-lien last-out senior secured credit facility. The repurchase of the existing second lien debt could be viewed as a default (distressed exchange) by Moody's if the purchases are made at less than par with holders incurring material losses. Upon transaction close, the Caa1 and Caa3 ratings on Form Technologies' existing first and second lien credit facilities will be withdrawn. The ratings outlook changed to stable from negative.

Moody's expects proceeds from the proposed transaction to be used towards repaying $65 million of outstandings under the company's revolving credit facility and $215 million of Form Technologies' existing first lien term loan and $204 million of existing second lien term loan together with other transaction-related costs. The refinancing will be effectuated through the proposed $175 million first lien last-out term loan and $300 million of preferred equity.

RATINGS RATIONALE

The ratings upgrade is based on the company's addressing its near-term debt maturities through the proposed refinancing, extending the company's debt maturity profile to 2025 from 2021. Further, Moody's expects the refinancing to improve the company's financial profile, with debt/EBITDA (including Moody's standard pension and lease adjustments) improving to the mid-6.0x range from approximately 9.0x for the last twelve month period ended September 30, 2020.

The following rating actions were taken:

Upgrades:

..Issuer: Form Technologies LLC

.... Corporate Family Rating, Upgraded to B3 from Caa2

.... Probability of Default Rating, Upgraded to B3-PD from Caa2-PD

Assignments:

..Issuer: Form Technologies LLC

....Senior Secured First Lien Revolving Credit, Assigned B2 (LGD3)

....Senior Secured First Lien First-outTerm Loan, Assigned B2 (LGD3)

....Senior Secured First Lien Last-out Term Loan, Assigned Caa2 (LGD5)

Outlook Actions:

..Issuer: Form Technologies LLC

....Outlook, Changed to Stable from Negative

To be withdrawn at transaction close:

..Issuer: Form Technologies LLC

.... Existing senior secured first-lien credit facility, Caa1 (LGD3)

.... Existing senior secured second-lien credit facility, Caa3 (LGD5)

Form Technologies' B3 CFR broadly reflects the company's high financial leverage and cyclical nature of certain of its end-markets including automotive, consumer electronics and oil & gas. Moody's expects financial leverage to improve by approximately 1.5 turns pro forma for the refinancing but remain elevated at over 5.0x over the next 12-18 months.

At the same time, the company's highly engineered process and unique tooling design lead to its sole-source manufacturing of many of its products. Additionally, Moody's expects the company's healthy EBITDA margins and effective working capital management to translate to healthy free cash flow.

Form Technologies' adequate liquidity profile is characterized by Moody's expectation of healthy free cash flow, availability under the company's $100 million revolving credit facility pro forma for the proposed refinancing, and ample headroom under the company's springing revolving credit facility covenant. The term loans do not contain financial maintenance covenants.

The stable outlook reflects Moody's expectation that the company will continue to take proactive measures to increase profitability as the top line gradually recovers from depressed levels in 2020 and that the company maintains an adequate liquidity profile.

Within the ESG framework, corporate governance is a key credit consideration underlying the company's B3 CFR given the company's private equity ownership and likelihood that financial leverage will remain high reflective of the company's largely debt-financed bolt on acquisition activity in recent years and event risk associated with private equity ownership.

The proposed term loan credit agreements do not contain financial maintenance covenants. The agreements contain covenant flexibility for transactions that could adversely affect creditors, including incremental facility capacity of the greater of $62.5 million and 50% of EBITDA, plus additional amounts subject to, 5.25x first lien net leverage (for first lien first-out), 6.50x first lien net leverage (for first lien second-out), and 6.75x total net leverage (additional junior debt). The credit agreement does not permit the existence of unrestricted subsidiaries, precluding any transfer of assets to unrestricted subsidiaries. Only wholly owned subsidiaries must provide guarantees but non-wholly owned subsidiaries will not be released from guarantees solely because such guarantor becomes a non-wholly owned subsidiary of the borrower without any bona fide business purpose. There are no leverage based step downs to the asset sale prepayment requirement.

The proposed first-lien first-out term loan's B2 rating, one notch above the company's B3 CFR reflects the repayment priority above the last-out term loan and support provided by unsecured liabilities in the company's debt structure.

The proposed first-lien last-out term loan's Caa2 rating, two notches below the CFR, reflects its effective repayment subordination to the company's first-lien first-out revolving credit facility and term loan.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The company's ratings could be downgraded if Moody's expects annual free cash flow were to turn negative, leverage to be sustained above 6.5 times debt/EBITDA, or if EBITA/interest were to trend towards 1.0 times. The loss of a major customer, with volume not replaced, could also drive negative ratings pressure.

Conversely, the ratings could be upgraded through consistent positive free cash flow, such that debt/EBITDA improves to less than 5.0 times and EBITA/interest of greater than 2.5 times on a sustained basis.

Headquartered in Charlotte, North Carolina, Form Technologies LLC is a global manufacturer of small precision, engineered metal components utilizing die casting and precision investment casting capabilities as well as metal injection molding technologies. Annual revenues exceed $800 million. The company is owned by Partners Group, Kenner & Company and American Industrial Partners and management.

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Jadijhe (Gigi) Adamo
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

Peter H. Abdill, CFA
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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