TEXT-S&P raises McJunkin Red Man proposed notes rating
Oct 24 - Standard & Poor's Ratings Services said today it raised its issue-level rating on McJunkin Red Man Corp.'s proposed $650 million senior secured credit facility to 'B+' (same as the corporate credit rating) from 'B'. We also revised the recovery rating to '4', indicating our expectation of average (30% to 50%) recovery for lenders in the event of a payment default under our scenario, from '5'. The raised rating issue level rating and revised recovery rating reflect higher recovery prospects for lenders due to a revised term loan capital structure in which the issuer will decrease the term loan to $650 million from $750 million. The company will use proceeds from the proposed term loan and a higher proportion of asset-based lending (ABL) facility balances to repay its existing 9.5% senior secured notes due 2016. We anticipate we will withdraw our rating on McJunkin's existing notes when the company successfully completes the refinancing. The 'B+' corporate credit rating and positive outlook on McJunkin Red Man reflect our view that recent margin expansions and lower debt levels may result in credit metrics that are more in line with a higher rating over the next year. The rating also incorporates what we consider to be the combination of McJunkin's "weak" business risk profile and "aggressive" financial risk profile. The business risk profile balances the company's large scale, scope, and diversity against its position in the highly fragmented, competitive distribution industry. The industry's business model characteristically exhibits low margins and requires high levels of inventory spending. We also note McJunkin's dependence on volatile energy-based end markets, which can cause earnings to fluctuate. The aggressive financial risk profile takes into account the company's lighter debt load and our "strong" liquidity assessment, but also considers its substantial working capital needs and that the company's private equity holders still retain a significant ownership stake following the public offering. For our full corporate rating rationale, please see, "McJunkin Red Man Corp. Outlook Revised To Positive, 'B+' Rating Affirmed; New Loan Rated 'B'," published on RatingsDirect on Oct. 5, 2012. RATING LIST McJunkin Red Man Corp. Corporate credit rating B+/Positive Rating Raised; Recovery Rating Revised To From McJunkin Red Man Corp. US$650 mil term bank ln due 2019 B+ B Recovery Rating 4 5 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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