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
Corporate Credit Rating B/Stable/--
$50 mil ABL due in 5 yrs BB-
Recovery Rating 1
$285 mil sr. secd. nts due in 7 yrs B
Recovery Rating 4
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by this rating action can be found on Standard & Poor's public Web site at
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