Tepid Economy Unlikely To Affect Waterworks Business

Moody's Investors Service believes the waterworks business will see continued demand--even in a tough economy--and therefore the rating agency has assigned a B1 rating to the proposed $325 million credit facility of National Waterworks, the largest distributor of water transmission products in the U.S. A $200 million senior subordinated note offering, which also is being used to fund J.P. Morgan Partners' and Thomas H. Lee Partners' $620 million acquisition of the business from United States Filter, has been assigned a B3 rating.

"Moody's believes National Waterworks has an attractive mix of municipal and private markets," said Paul Aran, v.p. and senior analyst at Moody's. The rating takes into account the belief that weak economic conditions have pressured some municipal budgets, but there is partial insulation from this. "The company benefits from the continued needs of the larger, older cities," he said, citing the repair of previously installed systems. On the private side, residential and commercial waterworks construction are expected to be more sensitive to swings in the economy, but the company is reasonably positioned even in a slowdown, he noted.

The rating is affected by the potential challenges the company will face in customer retention and in business expansion due to its new name and lack of a deep-pocketed parent, according to Moody's. National Waterworks previously was an indirect subsidiary of Vivendi Environment. Furthermore, it is a distribution company, not a manufacturing company, with few tangible assets, Moody's noted.