Terex's proposed $210 million senior secured "C" term loan will increase the company's heavy debt load to approximately $1.47 billion, a burden that has Moody's Investors Service concerned. Citing the debt load, the company's acquisitive growth strategy and the market's sluggish heavy equipment sales, Moody's has assigned the tranche a Ba3 rating.
The "C" tranche backs the Westport, Conn.- based company's $270 million acquisition of Genie Holdings. The company is highly leveraged for its rating level -- 8.1 times June's reported EBITDA of $181 million, or 4.5 times after full year acquisition contributions and related cost savings. Moody's also recognizes the company's sensitivity to corporate capital spending cycles and the cyclical nature of its business, which may benefit from an upturn over the medium term, but analysts are not sure.
On the plus side, Moody's acknowledges the company's increasing and diverse scale of product offerings and geographic presence, its relatively low cost structure, and its proven track record in improving acquired businesses. "The company is growing in size and scale with good companies," Moody's senior analyst, Charles Tan, said. The Redmond, Wash.- based Genie acquisition should be a positive move with growth prospects expected from the company's addition to Terex's production breadth. "Genie is a good company and it's a market leader in aerial platforms," Tan noted. Genie is one of two leading aerial work platform manufacturers in the country.
The proceeds from the term loan "C" plus $65 million in Terex common stock will finance the Genie acquisition. The new tranche will be secured by all of the company's assets, Tan said. Terex launched a seven-year, $375 million term loan "B" last May to back its acquisition of Demag Mobile Cranes, a line filled up by Credit Suisse First Boston, and Citibank (LMW, 6/9). Calls to Terex were not returned.