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Rating Action:

Moody's upgrades United Site Services' CFR to B2 from B3; outlook stable

15 Dec 2020

New York, December 15, 2020 -- Moody's Investors Service, ("Moody's") upgraded USS Ultimate Holdings, Inc.'s ("United Site Services" or "USS") Corporate Family Rating to B2 from B3 and its Probability of Default Rating to B2-PD from B3-PD. Concurrently, Moody's upgraded the ratings on the company's senior secured first lien term loan to B1 from B2 and its senior secured second lien term loan to Caa1 from Caa2. The outlook remains stable.

The upgrade of the CFR to B2 reflects strong organic growth in revenue and profitability as well as timely cost actions that are meaningfully improving credit metrics and liquidity. The company delivered better than expected operating results in 2020 despite early challenges related to the pandemic. Moody's expects USS will sustain the positive operating momentum over the next 12-18 months, including projected revenue growth in the high-single digits and profitability gains at slightly higher growth rates. Moody's projects debt-to-EBITDA (Moody's adjusted) to trend towards 4.0 times and the company will generate annual cash flow in excess of $100 million in 2021.

Upgrades:

..Issuer: USS Ultimate Holdings, Inc.

.... Corporate Family Rating, Upgraded to B2 from B3

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

....Senior Secured 1st Lien Term Loan, Upgraded to B1 (LGD3) from B2 (LGD3)

....Senior Secured 2nd Lien Term Loan, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)

Outlook Actions:

..Issuer: USS Ultimate Holdings, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

The B2 CFR reflects USS' leading market position within the fragmented portable sanitation and services market with a diverse and national customer base, historically high customer retention rates, continued industry tailwinds driven by strong demand for increased service frequency and favorable pricing as safety and hygiene remain a primary focus, and the expectation that USS will maintain very good liquidity. Moody's expects USS's debt-to-EBITDA (Moody's adjusted) to trend towards 4.0x over the next 12-18 month from an estimated 4.8x as of September 30, 2020 and for the company to generate free cash flow in the high single digits as a percent of outstanding debt (Moody's adjusted).

The company's rating is constrained by its moderate operating scale with revenue concentration in the highly cyclical residential and commercial construction end markets, narrow market focus, and aggressive financial growth strategies under financial sponsor ownership.

The stable outlook reflects Moody's anticipation of further credit metric and liquidity improvements over the next 12-18 months. Moody's expects the company will continue to benefit from strong market demand in the route based sanitation sector, recognize benefits from recent cost actions and acquisitions, and drive margin improvement. The stable outlook also assumes the company will maintain a good liquidity profile.

Moody's expects USS to have very good liquidity over the next 12-15 months. Sources of liquidity consist of expected cash balances in excess of $100 million at the end of fiscal 2020, projected annual free cash flow of approximately $120 million in 2021, and full availability under the company's $125 million ABL revolving credit facility (unrated). Current cash sources provide good coverage of approximately $9.1 million of annual mandatory debt amortization. There are no financial maintenance covenants under the first and second lien term loans but the ABL revolver is subject to a springing 1.0 times minimum fixed charge coverage covenant if excess availability falls below the greater of 10% of the aggregate commitments or $5 million. Moody's does not expect the covenant to be tested over the next year and believes there is ample cushion within the covenant based on projected earnings levels for the next 12-15 months if it were to be measured.

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

Upward rating pressure is limited by the company's aggressive financial policy, moderate size and lack of business diversity. However, the ratings could be upgraded if the company expands its operating scope and commits to a more balanced financial policy while maintaining good liquidity. Quantitatively, the ratings could be upgraded if debt reductions combined with sustained earnings growth leads to a material improvement in credit metrics such that debt-to-EBITDA (Moody's adjusted) is sustained below 4.0x and free cash flow-to-debt (Moody's adjusted) above 10%.

Conversely, Moody's could downgrade USS' ratings if revenue growth slows or profitability declines, leading to low or no free cash flow, or financial policies become more aggressive. Quantitatively, the ratings could be pressured if debt-to-EBITDA (Moody's adjusted) trends towards 6.0x, or EBITA-to-interest expense (Moody's adjusted) falls below 1.5x on sustained basis.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Westborough, MA and controlled by affiliates of Platinum Equity, USS is a provider of portable sanitation units, temporary fencing, storage containers and temporary electric equipment serving the construction, commercial and industrial, special event, government agency and other end markets. Moody's projects pro forma revenues of around $950 million in 2020.

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.

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.

Oleg Markin
Asst Vice President - 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

Karen Nickerson
Associate Managing Director
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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