Moody’s rates WernerCo loan B2, notes Caa2

Moody's Investors Service said it assigned a B3 corporate family rating and B3-PD probability of default rating to Werner FinCo LP (WernerCo).

In related actions, the agency assigned a B2 rating to the company's proposed senior secured term loan due 2024 and Caa2 to the proposed senior unsecured notes due 2025.

Proceeds from the new debt along with an equity contribution in the form of both preferred and common stock from affiliates of Triton Partners will be used to finance the leveraged buyout WernerCo.

The outlook is stable.

The new capital structure for WernerCo will consist of a $100 million asset-based senior secured revolving credit facility expiring 2022 (unrated), of which there will be some borrowings at closing, $265 million senior secured term loan maturing 2024, $265 million senior unsecured notes due 2025 and roughly $20 million in capital leases.

Moody’s said the B3 corporate family rating results from WernerCo’s leveraged capital structure following the buyout by affiliates of Triton Partners. Balance sheet debt is increasing by almost 125%, resulting in adjusted pro forma leverage of around 6.2 times at 1Q17.

Much higher debt balances and resulting cash interest payments will result in pro forma free cash flow-to-debt barely breaking positive for LTM 1Q17.

The pro forma calculations include Moody's standard adjustments for operating leases and some add-backs, the agency explained.

“WernerCo must contend with ongoing operating weakness in its United Kingdom operations,” Moody’s said in a news release.

“Moody's believes that WernerCo will pursue partial growth through debt-financed acquisitions in Europe, leveraging Triton Partners' expertise and knowledge of the European construction markets and building products companies. Earnings and resulting cash flows from overseas companies will not contribute directly to debt service unless WernerCo maintains tax-efficient strategies to repatriate cash from Europe.”

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