Moody's rates ServiceMaster notes B3

Moody's Investors Service said it assigned a B3 rating (LGD5, 74%) to the $1.15 billion proposed senior toggle notes of CDRSVM Acquisition Co., Inc., the acquisition vehicle for the pending leveraged buyout of the ServiceMaster Co.

The agency also affirmed CDRSVM's $2.65 billion seven-year senior secured term loan B, $500 million six-year senior secured revolving credit facility and $200 million seven-year senior secured synthetic letter-of-credit facility at B1 (LGD3, 33%) and its corporate family and probability-of-default ratings at B2.

The outlook is stable.

On March 19, Moody's placed the Baa3 senior unsecured debt ratings of ServiceMaster on review for possible downgrade after the company announced a definitive agreement to be acquired by an investment group led by Clayton, Dubilier & Rice, Inc. for $5.2 billion. The deal is expected to close in July and is expected to be financed in part with a $2.65 billion senior secured term loan and $1.15 billion in senior unsecured toggle notes.

On June 7, Moody's assigned a B2 corporate family rating and a B1 rating to the $3.35 billion proposed senior secured credit facility.

The agency said it would downgrade ServiceMaster's existing senior unsecured notes after the merger closes. Any notes remaining in the capital structure will likely be downgraded to Caa1 and the ratings on any notes redeemed at closing will be withdrawn.

The B2 corporate family rating is constrained by weak credit metrics pro forma for the buyout and significant competition from local, regional and national competitors, Moody's said.

The ratings are supported by leading market positions and brands in large end-markets, favorable geographic and service line diversification and stable financial performance. Also, strategic initiatives to cut costs and improve retention rates should help its performance, the agency said.

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