TEXT-S&P assigns Cleaver-Brooks Inc snr secured issue ratings

Tue Dec 4, 2012 10:54am EST

Dec 4 - Standard & Poor's Ratings Services said today that it is assigning
its 'B' rating to industrial manufacturer Cleaver-Brooks Inc.'s (B/Stable/--)
$285 million senior secured notes due in seven years that the company is issuing
as part of current private equity sponsor Wellspring Capital's plan to sell
Cleaver-Brooks to Harbour Group. We have assigned a recovery rating of '4' to
the notes, indicating average (30%-50%) recovery in the event of a default. We
are also assigning our 'BB-' rating to the company's $50 million asset-based
loan (ABL) revolving credit facility due in five years, with a recovery rating
of '1', indicating very high (90-100%) recovery in the event of a default.
Details regarding the proposed capital structure and new owners result in pro
forma credit metrics in line with current expectations for the 'B' rating. The
'B' corporate credit rating and stable outlook remain unchanged.

The ratings on Thomasville, Ga.-based Cleaver-Brooks reflect its "weak" 
business risk profile and "highly leveraged" financial risk profile. The 
company operates in a highly fragmented and competitive industry, and Standard 
& Poor's believes that this competition will remain a business risk. Still, we 
expect Cleaver-Brooks' profitability to remain good in fiscal 2013, and free 
operating cash flow should remain positive. This will allow the company some 
flexibility to maintain credit measures within our expectations for the 
rating, which include total debt to EBITDA of 5x-6x. The company's ownership 
by private equity remains a credit risk, in our view, because of private 
equity's influence on the company's overall financial policy.

For the 'B' rating, we currently assume leverage will remain about 5x to 6x 
(including our adjustments to add to debt the net present value of operating 
leases and underfunded postretirement obligations). The stable rating outlook 
reflects our belief that Cleaver-Brooks will generate positive free operating 
cash flow in the current fiscal year with improved year-over-year EBITDA 
margins, given the somewhat favorable trend for large industrial and 
commercial boiler replacement in core North American markets.


RELATED CRITERIA AND RESEARCH
Summary: Cleaver-Brooks Inc., Nov. 26, 2012


RATINGS LIST

Cleaver-Brooks Inc.
 Corporate Credit Rating                 B/Stable/--

New Ratings

Cleaver-Brooks Inc.
 Senior Secured
  $50 mil ABL due in 5 yrs               BB-
   Recovery Rating                       1
  $285 mil sr. secd. nts due in 7 yrs    B
   Recovery Rating                       4

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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