Moody's gives LRS, loans B3

Moody's Investors Service said it assigned first-time ratings to LRS Holdings, LLC (Lakeshore Recycling Systems), including a B3 corporate family rating, a B3-PD probability of default rating and a B3 rating on the company's planned senior secured bank credit facility, consisting of revolving credit and term loan facilities.

“The ratings reflect LRS' modest scale, with a primary regional focus in the US Midwest (mainly the Chicago area), its aggressive pace of acquisitive growth, which limits visibility into sustainable run-rate earnings, and a lack of a track record of positive earnings and free cash flow. The free cash flow profile is constrained in part by growth capital expenditures. The company's markets are fragmented and competitive, increasing the likelihood of further acquisitions to accelerate growth. A sizeable portion (43%) of waste collections are recycled/diverted primarily at cost and expose LRS to some commodity price volatility at roughly 5% of revenue,” Moody’s said in a press release.

The proceeds from the $300 million first-lien term loan, along with new sponsor equity (Macquarie) as well as rollover equity, will be used primarily to fund the buyout of LRS, including the repayment of all its debt and cover transaction expenses. LRS will also issue a $23 million delayed-draw term loan to support acquisitions and a new $75 million five-year revolving facility, which is not expected to be drawn at transaction close.

The outlook is stable.

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