S&P rates Fairbanks Morse B

S&P said it gave Arcline FM Holdings LLC (Fairbanks Morse Defense) a B issuer rating. Concurrently, the agency assigned B issue-level and 3 recovery ratings to the company's planned $510 million first-lien term loan, and CCC+ issue-level and 6 recovery ratings to the company's proposed $155 million second-lien term loan.

“Our rating on Fairbanks Morse reflects its small size and limited product, service, and customer diversity, combined with high leverage, solid profitability, and financial sponsor ownership. We expect pro forma debt to EBITDA to be 7x-7.5x in 2021 after accounting for transaction fees, declining to 6.3x-6.7x in 2022 due to growing revenue and the absence of transaction costs,” S&P said in a press release.

Arcline plans to fund the dividend and refinance debt with the proceeds from its two new loans. The capital structure also includes a $75 million asset-based loan revolver to provide liquidity, which is unrated and expected to remain undrawn in the near term.

The outlook is stable.

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