Blount International Inc. Rating Lowered To #B# On Proposed Dividend Recapi New Debt Outlook Stable

Stocks and Financial Services Press Releases Wednesday October 11, 2017 08:53
NEW YORK--11 Oct--S&P Global Ratings
  • Blount International Inc. is refinancing its capital structure, which will include a proposed $75 million revolving credit facility and $615 million term loan.
  • In addition to refinancing debt, the company plans to use the proceeds to pay a $120 million dividend to shareholders affiliates of American Securities and P2 Capital Partners and to pay transaction fees and expenses.
  • The transaction results in a meaningful leverage increase, so we are lowering our corporate credit rating on Blount to 'B' from 'B+'.We are also assigning our 'B' issue-level and '3' recovery ratings to the proposed revolving credit facility and term loan.
  • The stable outlook reflects our belief that the company will maintain adjusted debt to EBITDA between 5x and 6x over the next 12 months, supported by our expectation for modest revenue growth and continued improvement in the company's profitability via operational efficiencies.
NEW YORK (S&P Global Ratings) Oct. 10, 2017--S&P Global Ratings today lowered its corporate credit rating on U.S.-based Blount International Inc. to 'B' from 'B+'. The outlook is stable.

At the same time, we assigned our 'B' issue-level rating, with a '3' recovery rating, to the company's proposed revolving credit facility and term loan. Our '3' recovery rating indicates our expectation for meaningful recovery (50%-70%; rounded estimate: 50%) in the event of a payment default.

The downgrade reflects the company's higher leverage following the proposed dividend recapitalization. We believe the transaction indicates a more aggressive financial policy by the company's financial sponsors (specifically, a reduction in their commitment to maintaining leverage below 5x). Therefore, we are revising our financial policy assessment to incorporate the financial sponsors' tolerance for incremental leverage and the associated increased risk. We expect the transaction will weaken the company's debt to EBITDA to the mid-5x area (from the mid-4x area as of June 30, 2017) following transaction close, and estimate Blount will deleverage to the low-5x area over the next 12 months.

The stable outlook on Blount reflects our expectation that the company will maintain leverage between 5x and 6x over the next 12 months. These credit measures are supported by our expectation for modest revenue growth and a moderate improvement in the company's profitability from management's operational cost improvements.

We could lower our rating on Blount by one notch if the company's operating performance declined due to lower demand for the company's products such that it increased adjusted debt to EBITDA to more than 6.5x and we expected it to remain there. We could also lower our rating if the company pursued debt-financed acquisitions or additional shareholder returns that increased its leverage above 6.5x on a sustained basis.

Although unlikely over the next 12 months, we could raise our rating on Blount by one notch if we expected that Blount's total debt to EBITDA would be below 5x on a sustained basis and believed that the company was committed to maintaining financial policies (particularly around future shareholder returns and acquisitions) that would support this level of leverage.

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