The $325 million facility backing Clayton, Dubilier & Rice's acquisition of the Culligan International Co. is buoyed by Culligan's historical record of profitability and its leading position in the water treatment market, according to Moody's Investors Service. The ratings agency has assigned a B1 rating to the $325 million and a B3 to a proposed $250 million in euro-denominated notes, under a stable outlook. The facility consists of a $100 million revolver and a $225 million term loan and is led by Bank of America, BNP Paribas and Citigroup (LMW, 9/13). The acquisition will be completed with $200 million in cash.
The Northbrook, Ill.-based water services provider ratings are constrained by a modest consolidated cash flow relative to debt, less than optimal earnings quality and some concerns about the fundamentals of certain businesses, such as its Home Office Delivery (HOD) and the under-performance of its North American operations.
Positive considerations include the non-cyclical nature of Culligan's products, the strength of its brands, the diversity of its distribution channels and customers and the homogeneity of its dealers' network. According to the rating agency, other positive considerations include the quality of Culligan's receivables, the recurring nature of its revenue and the company's migration toward outsourced manufacturing, which could result in reduced stress to the company's future cash flows.
Moody's B1 rating reflects the benefits and limitations of the collateral and its priority position in the capital structure. The rating also contemplates the "first-loss cushion" the proposed bonds provide in case of default. The B3 assigned to the bonds reflects its subordination to the senior debt and Moody's estimation of limited loss severity in the event of default. A spokesman at Culligan did not return calls.
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