Sequa Corp. Subsidiary#s #B-# First-Lien Credit Facility Rating Affirmed Following Correction Of Recovery Rating

Stocks and Financial Services Press Releases Tuesday April 18, 2017 09:19
NEW YORK--18 Apr--S&P Global Ratings

NEW YORK (S&P Global Ratings) April 17, 2017--S&P Global Ratings today affirmed its 'B-' issue-level rating on Sequa Corp. subsidiary Sequa Mezzanine Holdings LLC's proposed first-lien secured credit facility. The '3' recovery rating remains unchanged, indicating our expectation for meaningful (50%-70%; rounded estimate: 50%) recovery in the event of a payment default.

Earlier today, we corrected our recovery rating on this facility to '3' from '4' because, in our analysis for the research update on Sequa that we published on April 4, 2017, titled "Sequa Corp. Downgraded To 'CC', CCR Placed On CreditWatch Negative On Distressed Exchange Offer; New Debt Rated," we incorrectly calculated the company's total amount of first-lien debt, which led us to assign an incorrect recovery rating.

Since we published that report on April 4, 2017, the company has eliminated the $300 million of proposed senior secured notes and replaced them with an additional $300 million of term debt. These changes mean that the proposed first-lien credit facility will now comprise a $135 million revolver and a $900 million term loan. As previously stated, the term loan has been upsized from the original $600 million amount, though this does not affect its recovery prospects because our analysis had already assumed that the company would issue $900 million of first-lien debt in addition to its revolver borrowings (exclusive of the error).

RECOVERY ANALYSIS
Key analytical factors
Earlier today we revised our recovery rating on Sequa's proposed first-lien credit facility to '3' from '4' due to an error in our original analysis.
The '3' recovery rating indicates our expectation for meaningful recovery (50%-70%; rounded estimate: 50%) in a default scenario.

The '6' recovery rating on the company's proposed second-lien term loan remains unchanged, indicating our expectation for negligible recovery (0%-10%; rounded estimate: 5%) in a default scenario.Sequa's proposed capital structure consists of a $135 million three-year revolving credit facility, a $900 million four and a half year first-lien term loan B, and a $350 million five-year second-lien term loan. The company also recently renewed its $75 million accounts receivable facility with a new 365-day tenor.Simulated default assumptions We have valued the company on a going concern basis using a 5x multiple of our projected emergence EBITDA.

Other default assumptions include LIBOR rising to 250 basis points (bps) and the revolver is 85% drawn at default.Simplified waterfall Emergence EBITDA: $121 millionMultiple: 5.0xNet enterprise value (after 5% administrative expenses): $574 millionPriority claims: $66 millionEstimated first-lien claim: $919 million--Recovery range: 50%-70% (rounded estimate: 50%)Total second priority debt: $373 million--Recovery range: 0%-10% (rounded estimate: 5%)


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