Moody’s assigns Kenan loan Ba3, notes B3

Moody's Investors Service said it assigned a B1 corporate family rating and a B1-PD probability of default rating to Kenan Advantage Group, Inc. in connection with the sale of the company to Omers Private Equity.

Concurrently, the agency assigned a Ba3 rating to the new $1 billion senior secured credit facility that the company intends to arrange and a B3 rating to the new $405 million senior unsecured notes due 2023 that it plans to issue.

The outlook is negative.

The revised rating outlook reflects the heightened risks associated with the increase in funded debt in the planned funding structure to almost $1.2 billion from less than $0.9 billion as of March 2015. As a result, Moody's expects debt-to-EBITDA to increase to at least 5 times in 2015, from 4 times for the last 12 months ended March 2015.

Notwithstanding the material increase in leverage, the B1 corporate family rating takes into account Moody's expectation that the improvements in operating margins and cash flow generation that Kenan has demonstrated are sustainable and, over time, will result in credit metrics that are more supportive of B1 corporate family rating.

The Ba3 rating on the new credit facility is one notch above the corporate family rating, reflecting the senior position that this class of debt will hold in Kenan's capital structure, which results in a higher estimated recovery rate for this secured facility as assessed using Moody's Loss Given Default methodology.

The B3 rating on the new $405 million senior unsecured notes due 2023 is two notches below the corporate family rating, reflecting the substantial level of secured debt that will be senior in claim to these notes. Moody's estimates that the notes would incur substantial loss in the event of default, as implied by a Loss Given Default assessment of LGD5.

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