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Moody's rates ServiceMaster loans B2
Moody's Investors Service said it assigned provisional B2 (LGD3) ratings to ServiceMaster Co., LLC’s proposed senior secured revolving credit facility due 2019 and senior secured term loan due 2021 and affirmed the company’s corporate family rating at B3, probability of default rating at B3-PD, speculative grade liquidity rating at SGL-2, senior secured credit facility at B1 and senior notes at Caa1.
The senior bonds issued by ServiceMaster Co. and ServiceMaster Co. LP were also affirmed at Caa2.
The outlook remains negative for all three companies.
The proceeds of the proposed term loan will be used, along with the proceeds of an initial public offering of primary shares and cash, to repay existing senior secured debt and to redeem a portion of the existing senior notes due 2020. The proposed credit facilities are contingent on the completion of the IPO, the proceeds of which must be used to repay debt.
Moody's expects the ratio of debt to EBITDA to be high in the range of 6.5 to 7.0 times in 2014 after an IPO of $500 million to $1 billion, assuming all net proceeds are used to repay debt. However, the agency said it anticipates ServiceMaster will remain profitable, generate at least $450 million of EBITDA, $100 million of free cash flow (before deducting non-recurring expenses from financing activities) and maintain its leading position in its termite and pest management and home warranty businesses, lending support to the ratings.
The negative outlook reflects Moody's concerns that customer count declines at Terminix could accelerate in 2014, pressuring revenue growth and profit margins and slowing the pace of deleveraging.
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