Moody's gives Merlin B3, loans B2, Caa2

Moody's Investors Service said it gave first-time ratings to Merlin Acquisition Corp., parent company of Bettcher Industries, Inc., including a B3 corporate family rating and a B3-PD probability of default rating. Concurrently, the agency assigned a B2 rating to the company's planned $300 million first-lien senior secured term loan and $60 million revolving credit facility and a Caa2 rating to the $85 million second-lien term loan.

The B3 CFR reflects the company's high adjusted debt-to-EBITDA (leverage) of around 7x pro forma for the leveraged buyout and its modest revenue base, Moody’s said.

“With under $200 million of revenue, Merlin Acquisition is smaller than most rated manufacturing peers. The company also has product and end-market concentration, with about three quarters of its profits generated from a small number of semi-automated hand tools and associated replacement parts used to process beef, pork and poultry. Customer concentration is also high with the top ten customers accounting for about 40% of sales. Near-term risks relate to the on-going labor shortage which will pressure the aftermarket business as a higher proportion of installed tools are idle,” the agency said in a press release.

Term loan proceeds and new equity from Kohlberg Kravis Roberts & Co. LP, will fund the acquisition of Bettcher Industries, Inc. from MPE Partners.

The outlook is stable.

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