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.


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