S&P rates Coty loans BBB-

Standard & Poor’s said it affirmed the preliminary BB+ corporate credit rating on Coty Inc.

The agency also said it assigned preliminary ratings to the debt of Coty BV, a subsidiary of Coty Inc. Those ratings include a preliminary BBB- rating to the proposed incremental €100 million term loan A due in 2020 and proposed incremental €300 million term loan B due in 2022.

The preliminary recovery rating on the term loans is a 2, reflecting 70% to 90% expected default recovery.

S&P also said it affirmed the preliminary BBB- ratings on the credit facilities issued by Coty and Galleria Co. The preliminary 2 recovery rating on these facilities, which indicates 70% to 90% expected default recovery, is unchanged.

The outlook is stable.

The ratings are subject to the merger of Coty and Procter & Gamble Co.’s beauty business closing on substantially the terms presented, the agency said.

Debt outstanding pro forma for the incremental term loan issuance is $7.2 billion, S&P said.

The ratings reflect an expectation that Coty will reduce debt following both acquisitions with good cash flow generation, the agency said.

The proposed financing is leverage neutral as the proceeds from the upsized facilities will be used to repay revolver borrowing that were drawn to pay for a portion of its acquisition, S&P said.

The acquisition provides Coty with manufacturing and distribution facilities in Brazil and should give it an immediate supply infrastructure and speed-to-market boost in that region, the agency said.

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