S&P rates Athena Bidco loan B

S&P said it assigned a B rating to Athena Bidco GmbH’s proposed €475 million senior secured term loan. Athena is a new holding company created to acquire P&ISWBido GmbH from Permira in a transaction valuing the company at about €2 billion. The agency also assigned a B rating and negative outlook to Athena. Privat equity firm Hg plans to acquire a majority stake in P&I.

“The buyout will lead to a substantial increase in leverage, but cash flow metrics will remain fairly robust. Hg intends to fund the deal, which is expected to close in March 2020, with a €475 million senior term loan, €300 million of PIK notes, and €1.2 billion of sponsor equity. Including the PIK notes, which we treat as debt, this will increase our adjusted debt to EBITDA to about 11x at the end of fiscal 2020, substantially higher than our previous forecast of 5.2x-5.4x and above our previous downside trigger of 7.5x,” said S&P in a press release.

S&P acknowledges the PIK facility is subordinated to the proposed loans and will not require any ongoing debt-servicing. The agency’s debt treatment reflects the PIK facility’s high accumulating interest burden, which could increase the refinancing risk at maturity, especially if the company's valuation drops significantly.

“However, in our view the meaningful share of non-cash-paying PIK debt in the structure partly cushions the impact on cash flow metrics. In our forecast, we expect adjusted FOCF to debt to remain between 4%-6% in fiscals 2020–2022 (7%-9% excluding PIK). This is weaker than the level of 9.6% in fiscal 2019 and our previous base case of 10%-13% in 2020-2021, but still consistent with that of peers at the B rating level, in our view,” S&P said.

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