S&P cuts Dexter Axle, rates facilities

S&P said it lowered the ratings on Dexter Axle Co., including the corporate credit rating, to B from B+ and removed all ratings from CreditWatch, where they were placed with negative implications on May 31.

Simultaneously, the agency reassigned the corporate credit rating on Dexter to DexKo Global Inc. (herein collectively referred to as DexKo Global or DexKo).

The outlook is stable.

At the same time, S&P assigned a B issue-level rating and 3 recovery rating to the company's proposed first-lien credit facility, which comprises a $150 million revolving credit facility (undrawn at close), a $570 million first-lien term loan, a €257 million first-lien loan and a €100 million first-lien loan. The 3 recovery rating indicates an expectation for meaningful recovery (50%-70%; rounded estimate: 65% for the $150 million revolving credit facility and €100 million first-lien loan; rounded estimate: 60% for all of the other first-lien issues) in the event of a default.

Additionally, the agency assigned a CCC+ issue-level rating and 6 recovery rating to the company's proposed $250 million second-lien term loan. The 6 recovery rating indicates an expectation for negligible recovery (0%-10%; rounded estimate: 0%) in the event of a default.

S&P said the downgrade follows DexKo's announcement that it will be acquired by KPS Capital Partners in a debt-funded transaction, which the agency expects to roughly double the company's total debt outstanding.

“Although DexKo's credit metrics will be elevated following the close of the transaction, we expect that the contributions from its recently completed bolt-on acquisitions (five completed since the beginning of 2016) and their associated synergies, combined with continued improvement in the company's product/price mix and its increased operating scale, will drastically reduce its leverage below 7x adjusted debt-to-EBITDA over the next 12-18 months,” S&P said in a news release.

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