S&P rates Starfruit loans B+

S&P said it assigned its preliminary B+ long-term issuer credit rating to Starfruit Topco Cooperatief UA. The outlook is stable.

In addition, S&P assigned a preliminary B+ long-term issue rating to Starfruit's proposed first-lien senior secured facilities, including €5.1 billion euro- and dollar-denominated term loans due 2025, and a €750 million revolving credit facility due 2024, to be issued by co-borrowers Starfruit Finco BV, Starfruit US Holdco LLC and Swedish Finco.

The preliminary recovery rating on the first-lien senior secured facilities is 3, reflecting an expectation of meaningful recovery of 50%-70% (rounded estimate: 60%) in the event of a payment default.

The rating follows private equity firm Carlyle's acquisition of AkzoNobel's specialty chemicals business through holding company Starfruit. The transaction is due to close before year-end 2018, subject to regulatory approvals.

The proposed financing for this carve-out comprises:

• A €1.8 billion senior secured first-lien term loan due 2025;

• A €3.3 billion U.S. dollar-denominated senior secured first-lien term loan due 2025 ($3.4 billion equivalent);

• €485 million senior unsecured debt;

• €900 million U.S. dollar-denominated senior unsecured debt ($1.1 billion equivalent); and

• A €750 million multicurrency revolver due 2024, undrawn at close.

“The preliminary ratings primarily reflect Starfruit's highly leveraged capital structure pro forma the transaction, since we forecast S&P Global Ratings-adjusted debt to EBITDA of 7.0x-7.5x in 2018 and 6.5x-7.0x in 2019. At the same time, we view Starfruit's adjusted EBITDA interest coverage of 2.5x-3.0x as supportive for the rating, as well as the positive free operating cash flow (FOCF) of €150 million-€250 million we forecast for 2018-2019,” S&P said in a news release.

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