Tailwind Smith Cooper Holding Corp. First-Lien Term Loan Recovery Rating Revised To '4' From '3' On Upsizing

NEW YORK (S&P Global Ratings) May 24, 2019--S&P Global Ratings today revised 
its recovery rating on Tailwind Smith Cooper Holding Corp.'s first-lien term 
loan to '4' from '3' and affirmed our 'B' issue-level rating. The '4' recovery 
rating indicates our expectation for average recovery (30%-50%; rounded 
estimate: 45%) in the event of a payment default. 

We revised our recovery rating on the first-lien term loan after the company 
confirmed that it had upsized the loan by $50 million to $740 million from 
$690 million. Additionally, Tailwind Smith Cooper reduced the size of its 
second-lien term loan by the same amount to $100 million from $150 million.


Key analytical factors
  • Our simulated default scenario contemplates a payment default occurring in 2022 due to sharp revenue and margin declines arising from the combination of an economic contraction, increasing price competition, and operational inefficiencies. Our recovery analysis assumes that the credit facility would be 85% drawn prior to a default.
  • S&P Global Ratings believes lenders will aim to maximize Tailwind's value and thus pursue a reorganization rather than a liquidation in a default scenario. Therefore, we value the company on a going-concern basis and apply a 5.0x multiple to our projected emergence EBITDA. The 5.0x multiple reflects the relative scale and scope of the company's operations in the niche pipe-fitting market.
Simulated default assumptions
  • Simulated year of default: 2022
  • EBITDA at emergence: $89.9 million
  • EBITDA multiple: 5.0x
  • Jurisdiction: U.S.
  • LIBOR at 2.5% in our assumed default year
Simplified waterfall
  • Gross enterprise value: $449.3 million
  • Net enterprise value (after 5% administrative costs): $426.9 million
  • Valuation split (obligors/nonobligors): Approximately 96%/4%
  • Collateral value available to secured creditors: $364.6 million
  • Secured first-lien debt: $741.4 million
  • --Recovery expectations: 30%-50% (rounded estimate: 45%)
  • Secured second-lien debt: $105.4 million
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
Note: All debt amounts include six months of prepetition interest.

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