Rating Action: Moody's assigns Ba1 CFR to Asplundh; sr. secured credit facility rated Ba1; outlook stable
Global Credit Research - 07 Aug 2020
New York, August 07, 2020 -- Moody's Investors Service, (Moody's) assigned a first-time Ba1 Corporate Family Rating and Ba1-PD Probability of Default Rating to Asplundh Tree Expert, LLC (Asplundh), a leading provider of vegetation management services and specialty construction and maintenance services for utilities, railroads, and municipalities in the US, Canada, Australia and New Zealand. Moody's also assigned a Ba1 rating to Asplundh's proposed $750 million senior secured revolving credit facility expiring 2025 and $2,000 million senior secured term loan due 2027. Proceeds from the term loan, will be used to pay a $2.0 billion dividend distribution to shareholders. The outlook is stable.
"Pro forma for the $2.0 billion dividend recapitalization, Asplundh will maintain sufficient financial, operating and strategic flexibility given its modest leverage, stable profitability and defensive end markets," said Emile El Nems, a Moody's VP-Senior Analyst. Pro forma for the transaction, Moody's expects debt leverage by year end 2020 (inclusive of Moody's adjustments) to be at 2.8x.
Assignments:
..Issuer: Asplundh Tree Expert, LLC
.... Probability of Default Rating, Assigned Ba1-PD
.... Corporate Family Rating, Assigned Ba1
.... Senior Secured Revolving Credit Facility, Assigned Ba1 (LGD3)
.... Senior Secured Term Loan, Assigned Ba1 (LGD3)
Outlook Actions:
..Issuer: Asplundh Tree Expert, LLC
....Outlook, Assigned Stable
RATINGS RATIONALE
Asplundh's Ba1 Corporate Family Rating reflects the company's strong market position as the leading provider of vegetation management services and of specialty construction for utilities, railroads, and municipalities in the US, Canada, Australia and New Zealand. In vegetation management (about 70% of fiscal year 2019 revenue), Asplundh is five times the size of its next competitor and is one of a few national providers with the scale, safety records, and operating experience required for large corporate clients. In addition, Moody's rating is supported by the company's defensive end markets, high level of recurring revenue, solid margins, modest leverage and a good liquidity profile. At the same time, Moody's rating takes into consideration the company's competitive dynamic in its specialty construction segment and overall revenue exposure to the utility sector.
Governance risks considered for Asplundh include the company's financial policy with respect to dividend distribution, the number of independent members who serve on the board of directors and the significant decapitalization in the company's recent transaction. This is partially mitigated by Asplundh's commitment to maintaining a modest leverage and a good liquidity profile. Pro forma for transaction, Moody's projects debt-EBTDA to be at 2.8x by year-end 2020.
The stable outlook reflects Moody's expectation that during the weak economic environment caused by the coronavirus outbreak, Asplundh will maintain stable revenue and profitability, generate significant free cash and de-lever its balance sheet. This is largely driven by Moody's expectation that the company's defensive end markets will remain supportive of its underlying growth drivers.
Asplundh has a good liquidity profile. Pro forma for the transaction, Asplundh's liquidity position is supported by $119 million of cash, a $750 million secured revolving credit facility which will remain mostly undrawn and Moody's expectation that the company will generate significant free cash flow in 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if:
» A long term commitment by management to a conservative financial policy
» The company attains a capital structure that allows for maximum financial flexibility
» The company further diversifies its revenue stream and improves its liquidity profile
» Debt-to-EBITDA is below 3.0x for a sustained period of time
» EBITA-to-Interest expense is above 6.0x for a sustained period of time
» Retained cash flow-to-net debt is above 25%
The ratings could be downgraded if:
» The company's liquidity profile deteriorates
» A larger than expected cash distribution to shareholders
» Debt-to-EBITDA is above 4.0x for a sustained period of time
» EBITA-to-Interest expense is below 4.5x for a sustained period of time
» Retained cash flow-to-net debt is approaching 20%
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Willow Grove, PA and founded in 1928, Asplundh is North America's largest provider of vegetation management, construction and other services that support the operations of utilities, rail roads and other industries. The vegetation management division consists primarily of clearing tree growth from power lines, maintenance of rights of-way, herbicide brush control, and storm debris removal. While the construction and other service activities include overhead and underground utility related construction and maintenance, meter reading and installation, street light construction and maintenance, electrical testing, planning and engineering services, etc.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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Emile El Nems Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dean Diaz Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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