- U.S. heating, ventilation and air conditioning (HVAC) and plumbing service provider Wrench Group LLC is being acquired by financial sponsor Leonard Green & Partners in a transaction valuing the company at $775 million. The company plans to issue a $45 million senior secured revolving credit facility, a $300 million first-lien term loan (including a $225 million initial first-lien term loan and $75 million first-lien delayed-draw term loan expected to be undrawn at close), and an unrated $75 million second-lien term loan.
- Wrench Group will use the proceeds from the initial issuance to fund the purchase consideration for the buyout, and it intends to use the eventual proceeds from the delayed-draw term loan to finance future acquisitions.
- We assigned our 'B' issuer credit rating to Wrench Group, and our 'B' issue-level and '3' recovery ratings to the first-lien facilities (including the delayed-draw commitment).
- The stable outlook reflects our expectation that good organic revenue growth, incremental sales from a recent acquisition, and cost control will allow the company to reduce leverage to about 6x by the end of 2019 and improve to the high-5x area in 2020.
NEW YORK (S&P Global Ratings) April 5, 2019—S&P Global Ratings today took the rating actions listed above. The rating on Wrench Group primarily reflects high leverage and ownership by a financial sponsor, very high geographic concentration in the southern U.S., narrow focus in a competitive and highly fragmented industry, relatively small scale, and low EBITDA margin compared to other rated consumer companies. We recognize that the company has a good position in many of its markets, a track record of strong organic revenue growth, and it provides nondiscretionary services. The stable outlook reflects our expectation that good organic revenue growth, incremental sales from a recent acquisition, and cost control will allow the company to reduce leverage to about 6x by the end of 2019 and improve to the high-5x area in 2020. We could consider lower ratings if we believe the company will sustain leverage above 7x or EBITDA interest coverage falls to the mid-1x area. This could happen if the company pursues a more aggressive acquisition strategy or if it has difficulty integrating acquired companies while maintaining margins. Higher ratings are unlikely given the company's financial sponsor ownership and our forecast that leverage will remain high as the company continues to pursue acquisitions. However, we would consider higher ratings if the company reduces leverage below 5x and if we believe that the company has committed to a financial policy consistent with maintaining such leverage.
