Belfor Holdings Inc. Rated 'B', Subsidiary Belfor USA Group Inc. Downgraded To 'B', On Private Equity Acquisition

  • Birmingham, Mich.-based disaster recovery services provider Belfor Holdings Inc. (Belfor) is being acquired by American Securities, a middle-market private equity firm.
  • We assigned a 'B' issuer credit rating to Belfor Holdings Inc.
  • We assigned issue-level and recovery ratings to the company's proposed $200 million revolving credit facility due 2024 and $585 million first-lien term loan due 2026, with which the company will partially fund the transaction. The issue rating is 'B' and the recovery rating is '3', indicating our expectation of meaningful (50%-70%; rounded estimate: 55%) recovery in the event of a default.
  • We also lowered the issuer credit rating on operating company Belfor USA Group Inc. and the issue-level ratings related to its existing debt by two notches, to 'B' from 'BB-'.
  • The stable outlook reflects our view that favorable operating trends should be supportive of the current ratings and the new owners will maintain leverage at appropriate levels.
NEW YORK (S&P Global Ratings) Feb. 7, 2019--S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects the increased leverage, to 
about 4.5x over the next 12 months from about 2.7x, and S&P Global Ratings' 
expectation that aggressive financial policy decisions from the new ownership 
could increase leverage further. These decisions could take the form of future 
growth initiatives, acquisitions, or shareholder rewards. 

The stable outlook reflects our expectation that adjusted debt to EBITDA will 
remain between 4x to 6.5x; that future operating trends should be relatively 
predictable; and that debt levels should be manageable even with potential 
deterioration in operating trends or aggressive financial policy decisions 
from the financial sponsors.

We could lower our ratings on Belfor if deteriorating operating trends or 
aggressive financial policy decisions result in adjusted debt to EBITDA 
increasing toward 7x with no clear prospects for recovery. This could happen 
in 2019 if Belfor's revenue contracted by at least 25% while its EBITDA margin 
weakened by more than 200 basis points (bps). While we believe a portion of 
Belfor's business is recurring, demand for its damage restoration services is 
difficult to predict, and circumstances could force the company to reduce 
pricing to stay competitive. We could also lower our ratings if tight headroom 
under the company's proposed financial covenants or negative free cash flows 
translates into constrained liquidity.

While less likely in the next year, we could raise our ratings on Belfor if 
operating trends continue to improve and if leverage remains below 5x, 
inclusive of acquisitions and shareholder rewards. 

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