TEXT-S&P puts Alliance Laundry 'B+' rating on watch negative

Tue Nov 27, 2012 9:47am EST

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Overview
     -- U.S.-based Alliance Laundry Systems is planning to refinance existing 
debt and fund a proposed shareholder distribution with $560 million of new 
senior secured credit facilities.
     -- We are placing our 'B+' corporate credit rating on Alliance Laundry on 
CreditWatch with negative implications. 
     -- At the same time, we are assigning our 'B' issue-level rating to the 
company's proposed $435 million first-lien senior secured credit facilities, 
and our 'CCC+' issue-level rating to the company's proposed $125 million 
second-lien term loan. 
     -- We intend to resolve the CreditWatch listing and lower the corporate 
credit rating by one notch to 'B' upon completion of the proposed refinancing 
and distribution to shareholders.
 
Rating Action
On Nov. 27, 2012, Standard & Poor's Ratings Services placed its 'B+' corporate 
credit rating on Ripon, Wis.-based Alliance Laundry Systems LLC on CreditWatch 
with negative implications, meaning the ratings could either be lowered or 
affirmed following the completion of our review.

At the same time, we assigned our 'B' issue-level rating to the company's 
proposed $435 million first-lien senior secured credit facilities, comprising 
a five-year $75 million revolving credit facility and a six-year $360 million 
first-lien term loan. The recovery rating on this debt is '3', indicating our 
expectation for meaningful (50% to 70%) recovery for lenders in the event of a 
payment default. At the same time, we assigned our 'CCC+' issue-level rating 
to the company's proposed seven-year $125 million second-lien term loan. The 
recovery rating on this loan is '6', indicating our expectation for negligible 
(0% to 10%) recovery for lenders in the event of a payment default. We expect 
proceeds from the new term loans to be used to repay existing debt and fund a 
$232 million shareholder distribution. 

Following the completion of this refinancing transaction, we anticipate 
lowering the corporate credit rating by one notch to 'B' as a result of the 
higher debt levels and weaker credit measures Alliance Laundry will incur. 
Accordingly, the new issue-level ratings are not on CreditWatch but are 
dependent on completion of the company's proposed refinancing transaction, and 
are subject to a review of final documentation.

The ratings on the company's existing $345 million senior secured credit 
facilities due 2017 remain unchanged and are not on CreditWatch, and will be 
withdrawn upon closing of the new senior secured credit facilities. 

Rationale
Alliance Laundry's CreditWatch placement reflects our belief that credit 
measures will meaningfully deteriorate and be below our expectations for the 
existing ratings as a result of significantly higher debt levels following the 
completion of the proposed recapitalization transaction. The company plans to 
use proceeds from this transaction along with cash from the balance sheet to 
repay its existing $254 million term loan due 2017 and to fund a $232 million 
shareholder distribution. As a result of this transaction, we expect adjusted 
leverage will increase to about 5.7x and the ratio of funds from operations 
(FFO) to total debt will decline to about 9%, from about 3.4x and 23%, 
respectively, for the 12 months ended Sept. 30, 2012.

Standard & Poor's ratings on Alliance Laundry reflect our view that following 
the company's proposed recapitalization transaction the company will have a 
"highly leveraged" financial risk profile and "weak" business risk profile. 
Key credit factors in our business risk assessment are the company's narrow 
product focus, small scale, and customer concentration, yet strong market 
position in the U.S. commercial laundry equipment segment. The financial risk 
assessment reflects our expectation that credit measures will weaken and 
remain consistent with indicative ratios for a highly leveraged financial risk 
profile, including adjusted leverage above 5x and FFO to total debt of less 
than 12%.

Alliance Laundry is a manufacturer of a full line of self-contained commercial 
laundry equipment, primarily serving laundromats, multiunit housing laundries, 
and on-premise laundries, with about 70% of its sales in the U.S. and Canada. 

Recovery analysis
For the complete recovery analysis see Standard & Poor's recovery report on 
Alliance Laundry, to be published following this report on RatingsDirect.

CreditWatch
We intend to resolve the CreditWatch listing when Alliance Laundry completes 
the proposed refinancing transaction and shareholder distribution. At that 
time we expect to lower the corporate credit rating to 'B' from 'B+' based 
upon terms of the currently proposed dividend recapitalization. 

Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- Use of CreditWatch and Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings On Global Industrials 
Issuers' Speculative-Grade Debt, Aug. 10, 2009
     -- Key Credit Factors: Business And Financial Risks In The Branded 
Consumer Products Industry, Sept. 10, 2008
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Rating Placed On CreditWatch
                            To                 From
Alliance Laundry Systems LLC
 Corporate credit rating    B+/Watch Neg/--    B+/Stable/--

Ratings Assigned
Alliance Laundry Systems LLC
 Senior secured
  Five-year $75 mil. revolver         B
    Recovery rating                   3
  Six-year $360 mil. term loan        B
    Recovery rating                   3
  Seven-year $125 mil. term loan      CCC+
    Recovery rating                   6

Ratings Unchanged
Alliance Laundry Systems LLC
 Senior secured                       BB-
    Recovery rating                   2
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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