Ranking Motion: Moody’s affirms Kronos Acquisition Holdings’ B3 CFR; outlook stays secure
World Credit score Analysis – 16 Dec 2020
$1.9 billion of recent debt rated
Toronto, December 16, 2020 — Moody’s Traders Service (“Moody’s”) affirmed Kronos Acquisition Holdings Inc.’s (“Kronos”) B3 company household score (CFR) and its B3-PD chance of default score. Moody’s additionally assigned B2 rankings to Kronos’ proposed new $775 million first lien time period mortgage and $600 million senior secured notes, and a Caa2 score to its proposed $525 million senior unsecured notes. The score outlook stays secure.
The proceeds from the brand new debt issuances will probably be used to refinance the present time period mortgage maturing in Might 2023 and the present senior unsecured notes due August 2023. Remaining proceeds from the brand new issuances and a portion of the money available will probably be used to pay a one-time dividend to the fairness homeowners of Kronos, associates of Centerbridge Companions L.P. and minority traders, and pay transaction charges. Upon the closing of the refinancing transaction, the rankings on the present first lien time period mortgage and unsecured notes will probably be withdrawn.
..Issuer: Kronos Acquisition Holdings Inc.
…. Company Household Ranking, Affirmed B3
…. Likelihood of Default Ranking, Affirmed B3-PD
..Issuer: Kronos Acquisition Holdings Inc.
….Senior Secured First Lien Time period Mortgage, Assigned B2 (LGD3)
….Senior Secured First Lien Notes, Assigned B2 (LGD3)
….Senior Unsecured Notes, Assigned Caa2 (LGD5)
..Issuer: Kronos Acquisition Holdings Inc.
….Outlook, Stays Secure
Kronos’ B3 CFR is constrained by: (1) excessive leverage (Debt/EBITDA of 6.9x for 2021E, professional forma for the elevated debt from the refinancing transaction and elevated procurement prices in the course of the reconstruction interval of the Lake Charles manufacturing facility); (2) short-term lower in demand in automotive phase anticipated within the close to time period mitigated by power in pool and family segments; and (3) Kronos’ possession by a personal fairness agency, which may result in monetary insurance policies which can be extra favorable to shareholders.
Nonetheless, the corporate advantages from: (1) sturdy demand in family and pool segments pushed by the coronavirus pandemic outbreak which is predicted to persist as shopper behaviours have modified; (2) its sizeable share of the US non-public label bleach market; (3) its good market positions in swimming pool components and automotive fluids; and (4) good liquidity.
Kronos has good liquidity. The corporate’s sources of liquidity whole roughly $270 million whereas it has obligatory time period mortgage repayments of about $8 million over the following 12 months. Kronos’ liquidity is supported by money of $50 million after the closing of the refinancing transaction, full availability beneath its $275 million ABL revolver due February 2023 (borrowing base of roughly $200 million), and our anticipated free money circulation round $20 million via the following 4 quarters. Kronos doesn’t need to adjust to any monetary covenants until ABL availability falls beneath $15 million, which mandates compliance with a minimal fastened cost protection ratio of 1x. We don’t count on this covenant to be relevant within the subsequent 4 quarters. Kronos has restricted capacity to generate liquidity from asset gross sales as its belongings are encumbered. Kronos has no refinancing threat till 2023 when its ABL revolving credit score facility comes due.
The secure outlook displays Moody’s expectation that Kronos’ leverage will probably be elevated over the following 12 to 18 months because of the elevated debt stage from the refinancing transaction and the elevated procurement prices ensuing from the harm to the Lake Charles manufacturing facility.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Kronos’ score could possibly be upgraded if working outcomes enhance over the following 12 to 18 months and Kronos sustains adjusted Debt/EBITDA beneath 5.5x (professional forma 6.9x for FY2021E) whereas sustaining good liquidity. Kronos’ rankings could possibly be downgraded if its working outcomes worsens and it sustains adjusted Debt/EBITDA above 7x (professional forma 6.9x for FY2021E) or if its liquidity deteriorates materially, on account of detrimental free money circulation era on a constant foundation. Extra leveraging acquisitions or paying a leveraging dividend to its non-public proprietor may additionally trigger a downgrade.
The primary lien time period mortgage and senior secured notes are ranked pari passu with one another and are rated one notch above the CFR as a result of they rank behind the unrated $275 million ABL facility and forward of the proposed $525 million senior unsecured notes, which offers loss absorption cushion for the time period mortgage and senior secured notes. The senior unsecured notes are rated two notches beneath the CFR to replicate their junior place inside Kronos’ capital construction.
Kronos Acquisition Holdings Inc., working as KIK Client Merchandise and headquartered in Harmony, Ontario, manufactures quite a lot of family cleansing, pool and spa components and automotive fluids. Excluding the divested private care phase, income for the twelve months ended October 3, 2020 was $1.7 billion. Kronos is owned by associates of Centerbridge Companions, L.P., a personal fairness agency, and minority traders.
The principal methodology utilized in these rankings was Client Packaged Items Methodology printed in February 2020 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a replica of this technique.
For additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. Moody’s Ranking Symbols and Definitions might be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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