Moody's rates Allison Transmission loan B1, notes Caa1

Moody's Investors Service said it assigned corporate family and probability-of-default ratings of B2 to Clutch Operating Co., Inc., which was formed to acquire the assets of Allison Transmission from General Motors Corp., which will be renamed Allison Transmission, Inc. after the deal closes.

The agency also rated Allison's $3.5 billion of secured bank debt, consisting of a $400 million secured revolving credit and $3.1 billion secured term loan, at B1 (LGD3, 38%) and its planned issue of $1.1 billion of unsecured notes at Caa1 (LGD5, 89%).

The outlook is stable.

The ratings consider Allison's favorable business profile and strong operating margins but emphasize the aggressive leverage used in its acquisition financing and resulting coverage metrics and extensive balance sheet intangibles that will be established from the underlying valuation, Moody's said.

The agency said it estimates Allison's initial debt-to-average EBITDA ratio over the next few years to be in excess of 7 times and this high level of leverage is a key rating constraint.

The stable outlook develops from the term nature of the company's business awards, expectations of moderate free cash flow over the intermediate period and sizable external liquidity arrangements, Moody's said.

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