Polypore Buyout Leaves Aggressive Leverage

Polypore's new $495 million bank facility will back Warburg Pincus' $1.15 billion leveraged buyout of the company from The InterTech Group and GTCR Golder Rauner. The rest of the debt financing will include $200 million and E165 million of senior subordinated notes, leaving Polypore with a very aggressive financial policy. This more than offsets its strong niche business positions in various growing industrial end-markets, according to Standard & Poor's.

S&P assigned its B+ rating to Polypore's new $495 million credit facility and a recovery rating of 4, indicating a 25-50% recovery of principal in the event of default. J.P. Morgan is leading the credit facility, which consists of a $75 million revolver and $420 million "B" loan. The revolver will be undrawn at closing and the "B" loan will amortize at the rate of 1% annually with a bullet payment at maturity in 2011. Pro forma leverage will be about 5.5 times. S&P expects Polypore to achieve and maintain total leverage of 4.5 times or less. A J.P. Morgan spokesman declined comment.

Polypore manufactures micro-porous membranes, a filtration technology used by makers of batteries, and separations equipment found in health-care markets. The company operates in a highly competitive industry, faces exposure to supplier concentration and has a weak financial profile, S&P says. But Polypore benefits from end-market diversity, proven technological expertise and certain barriers that restrict entry to the industry, the rating agency adds. Polypore's revenues have recently benefited from good growth in the electronics and health-care markets. Warburg Pincus officials declined comment and Polypore officials did not return calls.