Standard & Poor's assigned Collins & Aikman Floorcoverings' (CAF) $256 million credit facility a BB-, citing the numerous improvements over the past few years, namely growth and leverage reduction. "Business has grown over the last three years," said Jayne Ross, analyst at S&P's. "They've generated higher sales. EBITDA margins are over 20%, and they've also reduced debt. In 1998, total debt to EBITDA was 4.2 times. At the end of last year, it was down to 3.7 times," explained Ross. She also noted that the company holds the number-one market position for the six-foot roll-carpet segment, a fast-growing niche market. The rating also takes into account CAF's diverse customer base, which tends to offset the cyclical nature of the carpet industry. "The company services the education, hospitality, retail and government markets," explained Ross. "The carpet industry is a cyclical market. When there is a downturn in the economy, clients may cut back on operating improvements and other areas. Usually government spending increases during an economic downturn." Ross said CAF's market segments have high renovation rates, which account for nearly 60% of sales, rather than new construction.
Cost-saving measures and debt repayment have also eased leverage, which currently sits at 2.6 times for the 12 months ended Oct. 28 last year. EBITDA to interest coverage was approximately 3.5 times. Ross said that the agency believes CAF will maintain its current credit profile and strengthen over the next one to three years.
The credit is structured as a $50 million, six-year revolver; a $60 million, six-year term loan "A," and a $146 million, seven-year term loan "B." Pro rata pricing is linked to a grid based on CAF's leverage. The spread opens at 31/4% over LIBOR: the "B" tranche stays at 33/4% over LIBOR. Credit Suisse First Boston is sole lead arranger (LMW, 12/25). The loan backs Oaktree Capital Management and Bank of America Capital Investors' leverage buyout of CAF. Bank officials declined to comment.