FR Flow Control Midco Limited Assigned 'B' Issuer Credit Rating; Issue-Level Ratings Assigned; Outlook Negative


  • On Feb. 25, 2019, First Reserve Corp. agreed to acquire The Weir Group PLC's Flow Control division, forming the new entity FR Flow Control Midco Ltd. FR Flow Control is the parent of U.S.-based borrower FR Flow Control CB LLC.
  • The transaction will be funded with senior secured credit facilities and new cash equity from both the financial sponsor and management.
  • We are assigning a 'B' issuer credit rating to FR Flow Control.
  • At the same time, we are assigning a 'B' issue-level rating and '3' recovery rating to the $40 million revolving credit facility (RCF) and $180 million first-lien term loan B. The '3' recovery rating indicates our expectation for meaningful recovery (50%-70%; rounded estimate: 55%) in a payment default.
  • We are assigning a 'BB-' issue-level rating and '1' recovery rating to the $70 million first-lien term loan C. The '1' recovery rating reflects our expectation of very high recovery (90%-100%; rounded estimate: 95%) in a payment default. The proceeds of the term loan C will be deposited into escrow to fund the LC Account, which supports the reimbursement obligations under standby letters of credit (LCs), bank guarantees, and performance bonds.
  • The negative outlook reflects the uncertainty associated with the company operating as a stand-alone entity, as well as the execution risk in implementing proposed initiatives to improve margins, working capital, and cash flows.
CENTENNIAL (S&P Global Ratings) April 16, 2019—S&P Global Ratings today took the rating actions listed above. S&P Global Ratings' 'B' issuer credit rating on FR Flow Control incorporates its relatively narrow product focus, concentrated end-market exposure, below-average profitability compared to its peers, high debt leverage, and ownership by a financial sponsor. In our view, these constraints are somewhat mitigated by the company's strong position in attractive niches, its geographic diversity, and its recurring aftermarket revenue base.
The negative outlook reflects the uncertainty associated with the company operating as a stand-alone entity, as well as the execution risk in implementing proposed initiatives. It is our view that profitability underperformance, continued restructuring costs, or greater working capital requirements could hinder the company's ability to generate sufficient positive free cash flow.
We could lower our rating if the company's operating performance declines, due to a further weakening in revenue or higher than expected stand-alone and restructuring costs, such that it is unable to consistently generate positive free cash flow. We could also lower our rating if we expect the company to draw on its RCF such that it would constrain its overall liquidity, and/or leverage would increase above 6.5x on a sustained basis.
We could revise our outlook on FR Flow Control to stable if the company improves profitability, resulting in positive free cash flow on a sustained basis, while maintaining adjusted debt-to-EBITDA below 6.5x.
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