Zodiac Pool Solutions S.? r.l. Assigned #B# Corporate Credit Rating, Stable Acquisition Financing Rated

Stocks and Financial Services Press Releases Tuesday November 29, 2016 09:09
NEW YORK--29 Nov--S&P Global Ratings

NEW YORK (S&P Global Ratings) Nov. 28, 2016--S&P Global Ratings today assigned its 'B' corporate credit rating to Zodiac Pool Solutions S.à r.l. The outlook is stable. The company is operationally headquartered in Vista, California.

At the same time, we assigned our 'B' issue-level rating and '3' recovery ratings to the company's proposed $500 million first-lien term loan due 2023. The '3' recovery rating indicates our expectation for meaningful (lower end of the 50% to 70% range) recovery in the event of payment default. We also assigned our 'CCC+' issue-level rating and '6' recovery rating to the proposed $170 million second-lien term loan due 2024. The '6' recovery rating indicates our expectation for negligible (0% to 10% range) recovery in the event of payment default.

Upon close of the transaction we estimate the company will have roughly $676 million in adjusted debt outstanding. We include $5.5 million worth of operating leases in the adjusted debt balance.

The ratings reflect Zodiac's highly leveraged capital structure, narrow focus in pool maintenance equipment, geographic concentration in the U.S., and the highly seasonal and cyclical nature of the industry. The ratings also reflect Zodiac's above-average EBITDA margins from good pricing power, concentrated supplier position, flexible cost structure due to its large share of outsourced manufacturing, and the relatively stable underlying demand for pool cleaning/maintenance equipment needed to preserve pool functionality and value. We estimate pro forma adjusted debt leverage for this transaction is roughly 6.5x, and we forecast debt to EBITDA to fall to roughly 5x by the end of fiscal 2018 owing to gradual debt reduction and steady EBITDA growth.

Zodiac is a global producer of pool cleaning and equipment, including vacuums, heaters, pumps, filters, water care products, and other goods. Sales are driven by new pool construction (approximately 20% of total market) and existing pool maintenance and upkeep (approximately 80%). The former supports organic market growth, as new pools will eventually generate maintenance sales, which provides a solid stream of recurring revenue for Zodiac and its peers.

The outlook is stable, reflecting our expectation that the company will continue to improve EBITDA through cost reduction, sustained good pricing power, innovation, and supportive market conditions. We expect EBITDA growth to result in increased cash flow, which we believe the company will apply towards debt reduction.

We could consider a negative rating action if the company experiences operating or industry difficulties that result in margins decreasing by over 300 basis points, or if it recapitalizes through an extraordinary dividend, leading forecasted leverage to be sustained above 7.5x.

Given the risk of a future releveraging event resulting from its financial sponsor ownership and the company's narrow business model, it is unlikely that we would consider an upgrade over the next 12 months. We could, however, consider an upgrade if Zodiac's financial sponsor were to reduce its ownership stake to below 40%, while the company adopts a credible financial policy committed to reducing and sustaining leverage below 5x.


Latest Press Release

ชวนผู้ประกอบการเรียนรู้เส้นทางความสำเร็จของสตาร์ทอัพแอปพลิเคชัน เคลมดิ อังคาร 25 ก.ย. นี้

ตลาดหลักทรัพย์ฯ ขอเชิญผู้ประกอบการ Social Enterprise (SE) SMEs และ Startup ร่วมอบรมครั้งพิเศษในโครงการ SET Social Impact Gym หัวข้อ "Fintech vs Social Startup... Lesson Learned..." พบกับสตาร์ทอัพเจ้าของแอปพลิเคชัน "เคลมดิ" (Claim Di)...

3650 REIT and Silverfern To Collaborate on US CRE Private Debt

3650 REIT ("3650 REIT") and The Silverfern Group ("Silverfern") today announced a collaboration for bridge and event-driven lending secured by U.S. commercial real estate ("CRE") to be marketed as the Silver3TG Investment Program...

KTC packs a punch with worldwide online shopping opportunities with cash backs and up to X12 rewards points.

Mr. Nattasit Soontranu, Vice President - Credit Card Business, "KTC" or Krungthai Card Public Company Limited,states, "In the first half of the year, KTC achieved a decent level of online purchases made using KTC credit cards—a level that is also...

Political risks in Asia are on the rise

According to Coface's Political Risk Index, Asia scored 45% on the latest risk ranking, above the world average of 35%. Nevertheless, this score remains lower than those of Sub Saharan Africa, the Middle East & North Africa, Central Europe and Latin...

Greece#s exit from the international bailout programme

- Reforms have helped to clean up public accounts, restore Greece's credibility and strengthen confidence - The crisis has resulted in companies cleaning up their balance sheets - "Zombie" companies continue to survive, due to insufficiencies in the...

Related Topics