As it breaks into the secondary market after an extended stay in syndication, the $1.2 billion JohnsonDiversey credit has been assigned a Ba3 rating by Moody's Investors Service and a BB rating by Fitch Ratings. Led by Goldman Sachs and Citibank, the credit backs the acquisition of Unilever's commercial cleaning business by S.C. Johnson Commercial Markets. The combined company will have to carry leverage of between 5.5 to 6 times as well as dealing with a substantial scope of integration risk, according to Russell Gorman, v.p., senior analyst at Moody's. The new management will need to combine teams in fifty plus countries, and integrate a $1.5 billion acquired company with a $1 billion purchasing company, he added. "This is not a snap-on acquisition," he said. Heavy spending rates in research and development will further constrain the ratings.
But the rating is heavily supported by the long and successful track records of the two predecessor companies. The merger will create a company with $2.6 billion a year in revenue with a number one or two position in all key markets, Gorman noted. The company will also enjoy the liquidity benefit of a $300 million revolver, only partially drawn at inception, and a $150 million asset-securitization carve out available within a year of closing. Management also intends to bring leverage down as quickly as possible, he asserts. The rest of the bank debt comprises a $250 million "A" term loan, a $650 million senior secured "B" which includes both Euro and Dollar tranches, and a $100 million Yen-denominated revolver. The proposed $500 million in senior subordinated notes has received a B2 rating. This will pay down existing debt. Seniority in the capital structure drives the bank loan rating, in addition to guarantees and the collateral package. The notes are subordinated to all debt of non-guarantor subsidiaries.