S&P rates Interline notes B-, loan B+

Standard & Poor's assigned a B+ rating to Interline Brands, Inc.'s new $205 million senior secured credit facility and a B- rating to its new $200 million senior subordinated notes due 2011.

The new bank facility substantially improves the company's debt maturity profile, as it currently faces meaningful term loan amortization over the next several years, S&P noted.

For the bank loan S&P said it believes there is a strong possibility of meaningful recovery of principal in the event of default or bankruptcy. However, the value of the enterprise under a distressed scenario may not fully cover the amount of secured debt, assuming a fully drawn revolving credit facility.

Overall, Interline's ratings reflect its below-average business position as a leading U.S. distributor of maintenance, repair, and operations products, and its very aggressive financial profile.

The company competes with numerous local and regional distributors, a handful of national players, some of which are significantly larger and financially stronger than Interline, as well as traditional sales channels that include retail outlets and large warehouse stores.

The multifamily housing industry, which represents about 40% of Interline's sales, has been consolidating, resulting in an increased focus on costs and the desire for a national supplier, which benefits Interline, S&P noted. In addition, the slowdown in new apartment and hotel construction over the past two years should raise spending on products to maintain, repair, and refurbish existing units.

However, while this sector is stable, it has not been entirely immune to the effects of the economic downturn and historically low interest rate environment, which have caused higher vacancy rates.

Interline has a very aggressive capital structure as a result of a leveraged buyout in May 2000 and significant acquisition spending prior to 2002, S&P said. Debt to EBITDA at March 31, 2003, on a pro forma basis for the refinancing is 4.6x. This credit measure should strengthen as a result of modest debt reduction and improved earnings over the intermediate term, but is likely to remain in the low-4x area.

Moody's upgrades Jarden, rates add on B2

Moody's Investors Service assigned a B2 rating to the new $30 million add-on senior subordinated notes of Jarden Corp. and upgraded its existing ratings including raising its $150 million 9¾% senior subordinated notes due 2012 to B2 from B3. The outlook is stable.

Moody's said the upgrade reflects Jarden's improved ability to withstand volatility in its operations given its profitability gains since acquiring Tilia International in April 2002.

The rating action also considers the benefits of the Diamond Brands acquisition, which was largely purchased with free cash flow and diversifies Jarden's business towards consumable and less seasonal product categories.

The stable ratings outlook reflects the expectation that current rating levels appropriately recognize credit risks over the intermediate term, as the potential volatility in Jarden's business model and acquisition strategy requires above average credit statistics relative to the rating category, Moody's said.

For the full year 2003, Moody's projects EBITDA less capex interest coverage of nearly 5.0x, rent adjusted leverage of less than 3.0x, and free cash flow (operating cash flows less capex) to total debt of around 15%.

Moody's rates CB Richard Ellis notes, loan B1

Moody's Investors Service assigned a B1 rating to the proposed $200 million senior unsecured notes of CB Richard Ellis, Inc. and confirmed its senior secured bank facility, which the firm plans to expand by $75 million in a new term loan tranche, at B1. The outlook remains negative.

Moody's said the negative outlook reflects its concerns about potential integration risks and the continuation of a weak economic environment.

Moody's noted that although the senior unsecured bonds will be subordinated to the secured bank facility to the extent of the value of the assets pledged to the bank loan, the potential value of these assets in a stressed scenario would not be sufficient to consider a differential in credit quality between the secured bank facility and the senior unsecured bonds.

The ratings reflect that while CB Richard Ellis' acquisition transaction is highly levered, it is consistent with the firm's existing leverage profile. Moody's also considered positively the firm's ability to obtain greater flexibility under the leverage and interest coverage covenants associated with its bank credit facility.

The rating agency noted that the acquisition of Insignia would solidify CBRE's position as the largest real estate service firm in the world. The combined company anticipates generating revenues exceeding $1.8 billion in 2003, from $82 billion of annual sales and leasing transactions, and provide property management services for a global property portfolio of nearly 700 million sq. ft. In particular, the

acquisition of Insignia should substantially enhance CBRE's competitive position in key markets such as New York, Paris and London, where Insignia has been a leading firm. Moody's believes that a larger and more diversified property service platform will strengthen the company's brand and franchise, and improve cash flow stability.

Moody's puts Solutia on review

Moody's Investors Service put Solutia Inc. on review for possible downgrade including its $223 million senior secured notes due 2009 at Ba3, $300 million senior unsecured debentures due 2027 and $150 million senior unsecured debentures due 2037 at B1, $300 million senior secured revolving credit facility due 2004 at Ba2 and Solutia Europe SA/NV's €200 million senior unsecured notes due 2005 at B1.

Moody's said the review was prompted by its concern over operating margin pressure from higher raw material costs, increasing PCB litigation risk, the company's ability to refinance intermediate-term debt obligations and the potential for significant longer-term pension funding requirements.

Moody's review will focus on the pricing outlook for Solutia's key raw materials (natural gas, propylene, and cyclohexane), the potential benefit from announced price increases, and the prospects for free cash flow generation for the remainder of the year.

The review will also consider recent PCB litigation developments, including the potential consummation of a consent decree with the EPA, as well as Solutia's pension funding requirements (the company's pension was under-funded by $587 million as of December 31, 2002). Moody's review will also consider the company's plan to refinance its revolving credit facility due 2004 with a borrowing-base facility.

Moody's said it expects that the rating change could be one or two notches.

Moody's rates Oxford Industries notes B2

Moody's Investors Service assigned a B2 rating to Oxford Industries Inc.'s proposed $175 million senior unsecured notes due 2011. The outlook is stable.

Moody's said the ratings reflect the negative impact of the acquisition of Viewpoint International, Inc. on cash flow, the higher pro forma leverage, increased operating and fashion risk, and the strategic importance and strong performance of the Tommy brand to date.

As a result of the acquisition, Oxford will face increased fashion and marketing risk, as the Tommy line targets a different customer base at higher price points in both the retail and wholesale operations, Moody's noted.

The ratings also reflect high customer concentrations, the fiercely competitive nature of the apparel industry, the venture's dependence on key personnel, the risk of integrating a company with a vastly different corporate culture and Moody's concerns about the growth potential of the Tommy Bahama brand.

The ratings are supported by the Oxford's strategy to focus on brand ownership, the strong sales growth and earning per square foot exhibited by Tommy Bahama in a challenging retail environment, and the strength of the management team. The ratings are also supported by Tommy's ability to fund the last two years of store growth through internally generated cash flows.

Nine-month pro forma for the transaction, the company will be highly levered with adjusted debt to EBITDAR of 3.4x, Moody's said. On a stand-alone basis, Oxford could have difficulty supporting the proposed debt with its cash flow and is therefore reliant on the continued growth and profitability of Tommy.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.