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www.buyoutsnews.com March 25, 2013 | BUYOUTS | 41 FEATURE STORY Portfolio Company 'Weakest Links' Each month, Standard & Poor's compiles a list of what it calls "weakest links," or companies most in danger of debt default. Of the 149 in the report published March 7, at least 20 are backed by buyout fi rms. To make the list, companies must have had speculative corporate credit ratings of ‘B-' or lower with either a negative outlook or a negative CreditWatch implication on Feb. 20. Over the long term (1981-2013), an average of 8.18 percent of all global entities Standard & Poor's rates 'B-' defaulted within 12 months, and the average default rate was much higher for entities rated lower than 'B-'. Sponsor Portfolio Affected S&P Rating as of Industry Comments ** Company Debt ($M) Feb. 20, 2013 Apollo Management Altegrity Inc. * 2,035 CCC+ / Outlook Consumer Products S&P cut Altegrity Inc.'s corporate credit rating to 'CCC+' from 'B-' on Jan. 25, 2013. LP's Apollo Negative The revision refl ects S&P's view that "current capital structure is unsustainable Investment Corp. without a marked improvement in profi tability" at the Falls Church, Va.-based affi liate / Goldman, holding company. Altegrity is part of the portfolios of Apollo Investment Corp., Sachs & Company / Goldman, Sachs & Co. and Providence Equity Partners LLC. Providence Equity Partners LLC Ares Management Orchard Supply 138 CCC / Outlook Retail / Restaurants S&P cut Orchard Supply Hardware LLC's rating to 'CCC' from 'B-' in December 2012 LLC Hardware LLC Negative to refl ect the rating agency's view that the home and garden retailer's fi nancial risk profi le is "highly leveraged" and its business risk profi le is "vulnerable." Ares Management LLC added the San Jose, California-based company to its portfolio in November 2005. Bain Capital Guitar Center 1,427 B- / Outlook Retail / Restaurants S&P affi rmed Guitar Center Holdings Inc.'s corporate credit rating at 'B-' Negative and revised the ratings outlook to negative form stable on May 8, 2012. The Westlake Village, Calif.-based musical instrument retailer's ratings refl ect S&P's assessment that Guitar Center's liquidity is "less than adequate" but suffi cient to avoid a default within two years. Bain Capital acquired Guitar Center in June 2007 for $1.9 billion. Bruckmann, Rosser, Sheridan Group 150 CCC+ / Outlook Media and S&P lowered its corporate credit rating on Sheridan Group Inc. to 'CCC+' from 'B-' Sherrill & Co. Inc. Negative Entertainment on Sept. 14, 2011. "We view Sheridan's business risk as vulnerable because it is a specialized printer servicing niche segments, many of which are facing revenue contraction and the need to restructure operations," said S&P Credit Analyst Tulip Lim. Bruckmann, Rosser, Sherrill & Co. made its initial investment in the Hunt Valley, Md.-based provider of commercial printing services in August 2003. Carlyle Group LLC Synagro 349 CCC / Outlook Chemicals, S&P lowered Synagro Technologies Inc.'s corporate credit rating to 'CCC-' from Technologies Negative packaging, and 'CCC' on Dec. 18, 2012, as a result of the Houston company's highly leveraged Inc. environmental fi nancial risk profi le and weak liquidity. Carlyle Group LLC acquired the recycler services of biosolids in 2007 for about $770 million. Diamond Castle Community 395 B- / Outlook Finance Companies S&P affi rmed its 'B-' long-term issuer credit rating on Dec. 6, 2012 and revised Holdings Inc. Choice Negative the rating outlook to negative from positive. The revision follows a ruling in Financial Ohio's Ninth Judicial District that a single payment installment loan offered by Inc. * (FKA: a competitor didn't comply with the Ohio Mortgage Loan Act. Diamond Castle CheckSmart Holdings Inc. invested in the Dublin, Ohio-based consumer fi nance company Financial in 2006. A Diamond Castle representative said Community Choice has very low Holdings Corp.) leverage. He put it at less than 4x leverage. Diamond Castle Bonten Media 171 (++) CCC / Outlook Media and S&P cut Bonten Media Group Inc. to 'CCC' from 'CCC+' in September 2012 because Holdings LLC Group LLC Negative Entertainment of what the ratings agency viewed as New York City-based TV broadcaster's extremely high leverage and 'weak' liquidity. In November 2006, Diamond Castle worked with Randall Bongarten to form Bonten Media Group to buy and manage network-affi liated television stations. A Diamond Castle representative puts Bonten's debt at $157 million. Golden Gate Capital Aspect Software 800 B- / Outlook High Technology S&P downgraded the corporate credit rating on Aspect Software Inc. to 'B-' from Inc. Negative 'B' on Aug. 28, 2012. The change refl ects recent revenue decline, diminished profi tability and tightening covenant cushion at the call center software provider. The Chelmsford, Mass.-based company is part of the portfolio of Golden Gate Capital. Golden Gate Capital/ Atrium Cos. Inc. 185 CCC+ / Forest Products and S&P lowered Atrium Cos. Inc.'s corporate credit rating to 'CCC+' from 'B-' on Kenner & Co. CreditWatch Building Materials Sept. 25, 2012. The agency also placed the rating on CreditWatch with a negative Negative implication. The ratings changes refl ect S&P's assessment that deterioration in the company's liquidity due to weaker-than-expected demand for its products, as well as tightening covenants. The Dallas, Texas-based manufacturer of doors and windows completed a $125 million debt restructuring transaction with its bondholders, Kenner & Co. Inc. and Golden Gate Capital in January 2010. Hellman & Associated 730 B- / Outlook Forest Products and S&P lowered its corporate credit rating on Cuyahoga Falls, Ohio-based Associated Friedman LLC Materials LLC Negative Building Materials Materials to 'B-' from 'B' on April 26, 2012. "The downgrade refl ects our view that (AMH Holdings Associated Materials remains highly leveraged, with 'less-than-adequate' liquidity, LLC) in our view," S&P Credit Analyst Megan Johnston said. Hellman & Friedman LLC added the maker of building products to its portfolio in 2010 for $1.3 billion. 42 | BUYOUTS | March 25, 2013 www.buyoutsnews.com FEATURE STORY Portfolio Company 'Weakest Links' Sponsor Portfolio Affected S&P Rating as of Industry Comments ** Company Debt ($M) Feb. 20, 2013 Huntsman Gay iQor Holdings 1,100 B- / Outlook Telecommunications S&P revised iQor Holdings Inc.'s outlook to negative from developing on Aug. 22, Global Capital LLC Inc. Negative 2012, citing tight covenant. "The outlook revision refl ects our view that there are limited prospects for an upgrade over the next year given the company's tight fi nancial covenants," Credit Analyst Catherine Cosentino said. Huntsman Gay Global Capital LLC bought an undisclosed majority stake in iQor in September 2010. JLL Partners / Builders 140 CCC / Outlook Forest Products and S&P affi rmed its 'CCC' corporate credit rating on Dallas-based Builders Warburg Pincus LLC FirstSource Negative Building Materials FirstSource on Nov. 29, 2012. At the same time, it revised the outlook to negative. Inc. * The ratings changes refl ects S&P's view that the company "could approach, or possibly breach, its minimum liquidity covenants by the end of 2013." Warburg Pincus LLC added the maker of building products to its portfolio in 2006. Builders FirstSource is also sponsored by JLL Partners. A JLL spokesman said, “I imagine that there was a time when Builders First Source could have been characterized as a ‘weak link’. However based on revenue and EBITDA trends, BFS’s current liquidity (>$130 million) and the performance of both the company’s bonds and stock price, I cannot imagine BFS being so categorized today.” Kohlberg & Co. AGY Holding 175 CCC- /Outlook Chemicals, S&P said it lowered AGY Holding Corp.'s ratings to 'CCC-' from 'CCC+' on Dec. 1, Corp. Negative packaging and 2011, because the maker of glass fi bers' credit quality deteriorated as a result of environmental ongoing weakness in its operating performance. The ratings agency also cited services. a decline in liquidity and the potential for insuffi cient liquidity to meet interest payments in 2012. Kohlberg & Co. added AGY Holdings to its portfolio in 2006. Kohlberg Kravis Energy Future 37,250 CCC / Outlook Utility S&P raised its rating on Energy Future Holdings and its subsidiaries to 'CCC' on Roberts & Co. / TPG/ Holdings Corp. Negative Feb. 1, 2013, after the completion of several debt exchanges the agency views Goldman Sachs & as distressed. KKR, TPG and Goldman Sachs remain investors in Energy Future Company Holdings Corp. (FKA: TXU Corp.) Providence Equity Ascend 405 CCC+ / Outlook Media and S&P lowered its corporate credit rating on Ascend Learning LLC to 'CCC+' from 'B-' Partners LLC Learning LLC Negative Entertainment on Jan. 28, 2013 because of weaker-than-expected operating performance at the company, along with extremely high leverage, increasingly negative discretionary cash fl ow, and the agency's expectation that the company will need another amendment to its fi rst-lien credit facility when the covenant steps down on March 31, 2014. The Burlington, Mass.-based provider of educational products is part of Providence Equity Partners LLC's portfolio. Sun Capital PaperWorks 180 B- / Outlook Chemicals, S&P lowered its corporate credit rating on PaperWorks Industries Holding Corp. Partners, Inc. Industries Negative packaging, and to 'B-' from 'B' on Feb. 6, 2012, as a result of recent operating conditions in the Holding Corp. environmental paperboard industry. The ratings agency expects these conditions will likely services result in PaperWorks having a weaker-than-previously anticipated cash fl ow generation and will likely result in an increased risk of a covenant breach. Sun Capital Partners Inc. invested in the full-service packaging provider in September 2008. Vestar Capital MediMedia USA 266 CCC+ / Outlook Media and S&P downgraded MediMedia USA to 'CCC+' from 'B-' on May 31, 2012, as the Partners Inc.