Safe Fleet Holdings LLC Downgraded To #B-# From #B# On Acquisition Outlook Stable

Stocks and Financial Services Press Releases Wednesday May 16, 2018 10:18
NEW YORK--16 May--S&P Global Ratings
NEW YORK (S&P Global Ratings) May 15, 2018--S&P Global Ratings today lowered its corporate credit rating on U.S.-based Safe Fleet Holdings LLC to 'B-' from 'B'. The outlook is stable.

At the same time, we lowered our issue-level rating on Safe Fleet's first-lien term loan to 'B-' from 'B'. The recovery rating remains '3', indicating our expectation of meaningful (50%-70%; rounded estimate: 50%) recovery in a payment default scenario.

Additionally, we lowered our issue-level rating on Safe Fleet's second-lien term loan to 'CCC' from 'CCC+'. The recovery rating remains '6', indicating our expectation of negligible (0%-10%; rounded estimate: 0%) recovery in the event of a payment default.

The downgrade reflects our view that the incremental first-lien debt needed to fund the American Van acquisition will keep Safe Fleet's credit metrics elevated, particularly its adjusted-debt-to-EBITDA ratio. We expect the company's pro forma leverage to increase to about 7.8x following the transaction--and we anticipate that this figure will be elevated at above 8x at fiscal year-end 2018. While the incremental effect of the debt-funded transaction on the company's leverage isn't overly onerous by itself, we now forecast that Safe Fleet's adjusted-debt-to-EBITDA ratio will be inappropriate for it to sustain a 'B' rating during the next year. As well, the timing of the transaction--a mere few months following the leveraged buyout (LBO) by Oak Hill--speaks to an aggressive financial policy, which also influenced this rating decision.

The stable outlook reflects our expectation that favorable demand trends in Safe Fleet's end markets, management's operational improvement initiatives, and contributions from its recently acquired businesses will allow the company to maintain credit measures appropriate for the rating and adequate liquidity. While the company's leverage ratio will continue to be elevated during the next 12-18 months, we anticipate that free cash flow generation and debt repayment should reduce its adjusted-debt-to-EBITDA leverage ratio to 7x-7.5x by the latter part of 2019.

We could raise our ratings on Safe Fleet if the company establishes a track record of disciplined financial policies and reduces leverage beyond the expectations in our base-case scenario, either by applying more of its free cash flow to debt balances or by increasing EBITDA significantly. If the deleveraging (inclusive of potential acquisitions) is substantial, leading to sustained adjusted debt to EBITDA below 6.5x with future financial policies supportive of it, we could raise the ratings.

We could lower our ratings if a decline in the demand for the company's products causes its operating performance to weaken, limiting free cash generation and constraining liquidity while leverage is elevated. We could also lower our ratings if macro factors (such as an economic recession or abrupt increases in material costs and interest rates) or company-specific operational issues result in significantly lower earnings and cash flows and an unsustainable capital structure. This could cause the company to have difficulty meeting the fixed charges from its high debt burden and pressure liquidity, which could prompt us to lower the ratings.


Latest Press Release

Photo Release: SEC and BSA host Good IT Governance seminar

The SEC and the Business Software Alliance (BSA) jointly organized a seminar on "Good IT Governance: Risk Management and Data Responsibility" for more than 300 participants from listed companies, securities companies, and investment management companies...

Huobi Strategizes Market Penetration into Vietnam Rapidly Growing Blockchain Market

Huobi.Pro, the leading global digital asset exchange, which saw a cumulative annual turnover of US$850-billion in 2017, announced its grand strategy to tackle the Vietnamese market during their keynote speech at Blockchain Festival Vietnam. Frank Fan,...

Marlborough District Council Ratings Affirmed at #AA/A-1+#; Outlook Remains Stable

- Marlborough District Council (Marlborough)'s long-term plan calls for higher levels of capital expenditure during the next few years. We expect Marlborough to record modest after-capital deficits through the forecast period, though its debt burden will...

Taupo District Council Ratings Affirmed At #AA/A-1+#; Outlook Remains Stable

- Taupo's financial management, budgetary performance, and liquidity continue to support the ratings on the New Zealand-based district council. - We expect Taupo's debt burden to decline relative to revenues as the council maintains its strong operating...

Firstmac Mortgage Funding Trust No.4 Series 2-2018 Prime RMBS Assigned Preliminary Ratings

MELBOURNE (S&P Global Ratings) May 28, 2018--S&P Global Ratings today assigned preliminary ratings to five of the six classes of prime residential mortgage-backed securities (RMBS) to be issued by Firstmac Fiduciary Services Pty Ltd. as trustee...

Related Topics