Varnsen Industries Holdings S.a.r.l., Parent Of JPW Industries, Assigned #B# Rating On Sale To Outlook Stable

Stocks and Financial Services Press Releases Tuesday September 12, 2017 09:10
NEW YORK--12 Sep--S&P Global Ratings

NEW YORK (S&P Global Ratings) Sept. 11, 2017--S&P Global Ratings todayassigned its 'B' corporate credit rating to Varnsen Industries HoldingsS.a.r.l., the Luxembourg-domiciled parent of JPW Industries Holding Corp., aLa Vergne, Tenn.-based provider of specialty shop tools and equipment. Theoutlook is stable.

At the same time, we assigned our 'B' issue-level rating to JPW's proposed$220 million senior secured notes due in 2024. The recovery rating is '4',indicating our expectation of average (30%-50%; rounded estimate: 40%)recovery for lenders in the event of a payment default.

The company intends to use these debt proceeds, along with an equitycontribution from Gamut Capital Management, to purchase JPW Industries and payfees and expenses.

Our ratings on Varnsen reflect our view of the company's small size in thehighly competitive and fragmented $7 billion specialty tools market, highrevenue concentration in the U.S., relatively narrow product offerings(woodworking and metalworking tools), significant supplier concentration (top

10), relatively high debt, and potential for aggressive financial policiesstemming from the company's financial sponsor ownership. In our view, theseconstraints are only partly mitigated by the company's long and establishedportfolio of brands, asset-light business model, and relatively attractive

EBITDA margins.

The stable outlook on Varnsen reflects our expectation that relatively stabledemand for the company's products will allow the company to maintain leveragebelow 6x and a FFO-to-debt ratio in the high–single-digit to low-teenspercentage range through 2018. These credit measures are supported by ourexpectation for slight revenue growth due to gradual recovery in theindustrial sector.

We could lower our rating on Varnsen if its S&P Global Ratings-adjusted debtto EBITDA reaches and remains above 6.5x. This could occur if there is asignificant decline in earnings due to end-market weakness, loss of keycustomers, supplier issues, or difficulty in improving its cost structure. We

could also lower the rating if the company pursues debt-financed acquisitionsor makes sponsor-related payments that would push leverage to above 6.5x.

An upgrade is unlikely within the next 12 months given our expectation thatleverage will remain high and that the company is owned by a private equityfirm. Nevertheless, we could raise our rating on Varnsen ifstronger-than-expected operating performance leads to improved creditmeasures, including leverage approaching 4x, and the company demonstrates lessaggressive financial policies that support sustaining this level of leverage.

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