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Rating Action:

Moody's upgrades Paladin Brands Holding, Inc.'s ("IES Global") CFR to B2 from B3 and affirms B3 rating on first lien term loan

02 Feb 2018

Approximately $275 million of rated debt affected

New York, February 02, 2018 -- Moody's Investors Service, ("Moody's") upgraded the Corporate Family Rating ("CFR") and Probability of Default Ratings of Paladin Brands Holding, Inc. ("IES Global"), to B2 and B2-PD from B3 and B3-PD, respectively. The CFR upgrade is based on both the company's continued improvement in operating performance as well as the positive industry fundamentals underlying the company's main end-markets. Concurrently, Moody's affirmed the rating on Paladin Brands Holding, Inc.'s first lien upsized $274 million outstanding secured term loan due 2022 at B3. The ratings outlook is stable.

Proceeds from the upsized term loan (including $61.5 million add-on) together with $15 million of drawings under the company's revolving credit facility (unrated) are expected to be used to repay in its entirety the company's $75 million subordinated second lien term loan as well as pay related fees and expenses. The refinancing transaction is expected to be leverage neutral with pro forma total debt at December 31, 2017 of $289 million. Paladin Brands Holding, Inc., Crenlo Cab Products, Inc. and Emcor Enclosures, Inc. are subsidiaries of IES Global B.V. that are co-borrowers of the proposed term loan.

The following rating actions were taken:

Paladin Brands Holding, Inc.

Ratings Upgrade:

Corporate Family Rating, to B2 from B3

Probability of Default Rating, to B2-PD from B3-PD

Rating Affirmation:

$274 million outstanding including add-on sr. secured first-lien term loan due 2022, at B3 (LGD-4) from B3 (LGD-3)

Outlook, Stable from Positive

RATINGS RATIONALE

The ratings upgrade is based on the expectation that the company's top line and operating performance should benefit from improvement in the company's main end-markets including construction and demolition that together comprise about half of revenues. Debt/EBITDA as of the latest twelve months ended December 31, 2017 stood at 5.0x with the expectation of further moderate improvement to the 4.5x range by the end of 2018. Further, EBITA/interest coverage is expected to approach 2.5x from 2.0x during the same respective time period. While these metrics are strong for a B2 rating under the Manufacturing methodology, the company's corporate family rating is tempered by the highly cyclical nature of its end-markets.

IES Global's B2 CFR considers the company's modest revenue scale, high leverage, degree of customer concentration and cyclical end-markets counterbalanced by an adequate liquidity profile, an international operating footprint, and long established relationships with large heavy equipment manufacturers and dealers. The company's portfolio of attachments and cabs allow heavy machinery to be used for multiple purposes and in varied weather conditions enhancing the machinery's utility and versatility. The rating is supported by our expectation for positive free cash flow and moderate EBITDA improvement over the next twelve to eighteen months.

The company's relatively modest revenue scale and product concentration in the heavy manufacturing industry exposes it to significant cyclicality. A stabilization in certain of IES' end-markets benefiting from improvement in global construction markets underlies our expectations for moderate EBITDA improvement. The company's customers across the board are expected to benefit from improvements in current end-market fundamentals. Further, the ratings benefit from low required capital expenditures, high variable costs, and ongoing international expansion. Additionally, restructuring actions over the last two years are expected to contribute to margin sustainment. The company has been demonstrating improved operating results since late 2016 and signs of recovery in end-markets in tandem with debt reduction underscores our expectation that credit metrics will improve further.

IES' liquidity profile is adequate characterized by expectations of positive free cash flow generation and good availability and covenant headroom under its revolving credit facility. Liquidity is supplemented by access to foreign assets abroad as an alternate source of liquidity.

The stable outlook is based on the expectation that operating performance will continue to further improve due to positive end-market fundaments over the next twelve to eighteen months while maintaining an adequate liquidity profile.

The B3 rating on the first lien senior secured term loan, one notch below the B2 CFR, is primarily based on its ranking junior relative to the company's $85 million ABL facility and lack of junior capital support in the debt structure due to the repayment of the second lien term loan.

Upward rating momentum would depend on debt/EBITDA improving towards 3.5 times, EBITA/interest exceeding 3.3x and consistent positive annual free cash flow generation with free cash flow/debt of at least 10%. An increase in the company's revenue scale through organic revenue growth supplemented by acquisitions would also support upward rating momentum.

Downward rating momentum would develop if the company's liquidity profile were to weaken, particularly from a deterioration in free cash flow. Deterioration in end-market conditions such that debt/EBITDA exceeds and is sustained above 5.25 times and EBITA/interest falls below 1.5x could also lead to a downgrade.

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.

Paladin Brands Holding, Inc. is one of IES Global B.V.'s subsidiaries and a borrower under the company's debt facilities. IES, located in Oak Brook, IL, is an integrated, global manufacturer of a diversified range of highly engineered cab enclosures and attachment tools for the off-highway industry. The company was created in 2011 with the combination of Paladin Brands (including Paladin Attachments, Genesis, Pengo, Jewell) and Crenlo, while Siac do Brasil and CWS were acquired in 2012. Revenues for the last twelve months ended December 31, 2017 totaled $541 million. IES is owned by KPS Capital Partners, L.P., a manager of a family of private equity funds.

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.

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

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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