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Rating Action:

Moody's upgrades Univar to B2 following equity IPO

18 Jun 2015

New York, June 18, 2015 -- Moody's Investors Service has upgraded Univar Inc.'s (Univar) Corporate Family Rating (CFR) and term loan ratings to B2 from B3. The upgrade reflects the successful completion of the company's initial public offering and a concurrent private placement of equity that have generated new equity commitments expected to yield roughly $790 million in gross equity proceeds to the company. The proceeds of the offerings are intended to be used to retire the $600 million 2017 subordinated notes and $50 million 2018 subordinated notes, to pay the equity sponsors $26 million in a consulting termination fee, increase cash balances and to pay related fees and expenses.

At the same time, Moody's has assigned B2 ratings to the company's new $2.05 billion Term Loan B, new EUR 250 ($277) Term Loan B, and Caa1 to the new $400 million senior unsecured notes. Proceeds from the new term loan and notes will be used to retire the existing $2,676 TLB and EUR 127 ($144) TLB that were set to mature in June 2017. Moody's has also assigned an SGL-2 speculative grade liquidity rating to Univar Inc. The outlook for the ratings is stable.

"The use of the IPO proceeds to reduce debt will improve adjusted leverage by roughly one full turn to roughly 5.5 times", according to Joseph Princiotta, Moody's vice President -- Senior Analyst. "The leverage improvement, combined with the refinancing, Univar's scale, and ongoing cost and operational improvements warrant the one notch upgrade to B2."

The equity raise, which will be used to repay $650 million in 10.5% sub notes, lowers leverage by about one full turn. This transaction, combined with the refinancing of the TLBs with new TLBs maturing in 2022, provide the added benefits of extending Univar's debt maturity profile and lowering interest costs by about $75 million annually. The $1.3 billion ABL revolver is also being extended from 2018 to 2020. The term loans will have no financial covenants, but they will have a 50% excess cash flow sweep, which falls away when secured leverage improves by a half turn. The term loans have an accordion feature allowing for additional borrowings (the greater of $650 million or the most recent 12 months of EBITDA), plus additional amounts to be limited by a secured leverage test (which has yet to be determined).

The following summarizes the ratings activity:

Univar Inc.

Ratings Upgraded:

Corporate Family Rating -- B2 from B3

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

* Senior Secured Term Loan B due 2017 -- B2,LGD4 from B3, LGD4

* Senior Secured Euro Term Loan B due 2017 -- B2, LGD4 from B3, LGD4

* these ratings will be WR upon closing of the new USD and Euro TLBs

Assignments:

Senior Secured USD Term Loam B - B2, LGD4

Senior Secured Euro Term Loan B - B2, LGD4

Senior Unsecured Notes - Caa1, LGD5

Speculative Grade Liquidity Rating - SGL-2

Outlook Actions:

Outlook, Remains Stable

RATINGS RATIONALE

Univar's B2 Corporate Family Rating (CFR) benefits from its leading market share in North America and large market share in Europe and the ROW, economies of scale, long-lived customer and supplier relationships with minimal concentration, the relatively stable nature of historical EBITDA generation, and modest maintenance capital expenditure requirements. The credit profile also benefits from the favorable industry trends in outsourcing to distributors that has resulted in the distribution business growing faster than overall chemicals sales.

The rating also reflects modest operating margins (albeit typical for a chemicals distributor) that allow for a minimal cushion given the high leverage, an underperforming European business with improving but still low margins, exposure to the energy and chemical end markets in the US, and a history of inconsistent free cash flow generation (as cash flow has been used to support IT and restructuring as well as working capital investment to support sales growth). Moreover, working capital swings can be large reflecting seasonality in the agricultural chemicals distribution business.

Univar's EBITDA has been relatively stable due to its well diversified and stable end markets, with less, but still meaningful exposure to the more volatile end markets like energy and commodity chemicals. Food, agriculture, pharmaceuticals, coatings, adhesives, cleaning, and personal care, which combined account for more than half of total revenues, provide good stability to EBITDA and cash flow generation.

Recent performance has benefited from enhanced cost control and productivity initiatives. Warehousing, selling and administrative costs were reduced in 2014, while Univar's European business has seen margins improve to 3.8.%in 2014 up from 2.2% the year before due to restructuring initiated in 2013. Continued margin improvement and working capital control will be important to improving free cash flow stability and generation.

Moody's expects Univar's profitability to remain relatively stable in 2015, as top-line pressures from lower energy and commodity chemical prices and from strong dollar headwinds are likely to be only partially offset by lower fuel costs and cost reduction efforts, particularly in Europe. Free cash flow in 2015 is expected to be positive, but not substantial within the context of Univar's high debt level.

Univar has actively used acquisitions to expand geographically, gain exposure to new product lines and distribution systems, and to gain economies of scale. Future acquisitions could possibly impede or slow the pace of deleveraging.

While recent acquisition activity has been modest -- 2014 acquisitions totaled about $40 million -- Univar in the past has made some relatively large acquisitions, such as the 2010 purchase of BCS for approximately $690 million and purchase of Magnablend in 2012 for roughly $500 million. Univar has also made a number of smaller bolt-on acquisitions, such as the 2011 purchases of Eral-Protek, Arinos and businesses from The Quaron Group for approximately $155 million in total. In the second quarter 2013, the company purchased Quimicompuestos - a distributor in Mexico for about $90 million.

Univar has good liquidity supported by its cash balances ($183 million as of March 31, 2015) and unused capacity under its revolving credit facilities. The company's $1.3 billion ABL revolver, used by its U.S. and Canadian operations, is being refinanced with similar terms extending the maturity to 2020 from 2018. The ABL facility had $578 of unused availability as of the March quarter. The ABL term loan of $37.5 million is being repaid with a new $100 million ABL term loan which will mature in 2018. The EUR 200mm ABL facility, which matures in 2019, will remain unchanged with the new capital structure and had unused availability of $145 million

Under the revolving credit agreements, the company has a springing fixed charge coverage ratio (FCCR). In order to have access to the last 10% of the face amount of the US facility or combined borrowing base, the company would be required to maintain a FCCR in excess of 1.00x (1.9x as of December 31, 2014).

Moody's would consider raising the rating if the company shows improving trends in revenues, margins and working capital management, and if it achieves adjusted leverage (Debt / EBITDA) of less than 4.4x on a sustained basis.

Moody's would consider a downgrade if adjusted leverage were to deteriorate to above 6.0x on a sustained basis.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Univar Inc. is one of the largest global distributors of industrial chemicals and providers of related services, operating more than 700 distribution centers serving diverse end markets in the US, Canada and Europe. Univar's top 10 customers account for roughly 13% of sales, while its the top 10 suppliers represent roughly one-third of expenditures. The company was taken private in October 2007, and is currently still majority owned by funds managed by CVC Capital Partners and Clayton, Dubilier & Rice, LLC. The company had revenues of $10.4 billion for the year ended December 31, 2014.

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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

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.

Joseph Princiotta
Vice President - Senior Analyst
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

Brian Oak
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 upgrades Univar to B2 following equity IPO
No Related Data.
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