Premdor Inc.'s proposed $685 million senior secured bank credit facility has been assigned a Ba2 rating Moody's Investors Service because of risks associated with the company's merger with Masonite. According to Joseph Snider, v.p. and senior analyst at Moody's, integration issues are associated with any merger. "The two cultures can clash, management can clash, and the employees of the company that's being acquired can have no loyalty to the acquiring company," he said, explaining why the rating agency gave the company a Ba2 rating. He added that Premdor has made a number of smaller acquisitions, but that Masonite is its first major acquisition. Robert Tubbesing, cfo of Premdor, did not return calls for comment.
The rating also factors in the heavy debt load Premdor plans to take on to finance the transaction. The company is using a significant percentage of its $685 million bank deal to buy Masonite. "The concern is that the percentage of total debt-to-capitalization is 65%. Before the ratio was 40-50%, which is a bit of a stretch [in comparison to the former ratio]," he said. The company expects to reduce the debt ratio to 50% in a year, which is considered in "better balance," according to the rating.
On the positive side, Masonite carries a strong brand name and prominence in the market. "If Premdor effectively advertises, they could make a commodity product a consumer product," Snider said. "This could elevate Premdor as a company that makes products consumers know about."