Authentic Brands Group LLC New Financing Assigned #B# Corporate Credit Rating Outlook Stable

Stocks and Financial Services Press Releases Tuesday September 19, 2017 08:54
CHICAGO--19 Sep--S&P Global Ratings
CHICAGO (S&P Global Ratings) Sept. 18, 2017--S&P Global Ratings today affirmedits 'B' corporate credit rating on Authentic Brands Group LLC (ABG). Theoutlook is stable.

We also assigned a 'B' issue-level rating to the company's proposed first-liencredit facility, including a $75 million revolver due in 2022 and a $685million term loan due in 2024. The recovery rating is '3', reflecting ourexpectation for meaningful (50%-70%; rounded estimate: 60%) recovery in theevent of a payment default.

At the same time, we assigned our 'CCC+' issue-level rating to the proposed$310 million second-lien term loan due 2025. The recovery rating is '6',reflecting our expectation for negligible (0%-10%; rounded estimate: 0%)recovery in the event of payment default.

We expect to withdraw our 'B+' issue-level and '2' recovery rating on thecompany's existing first-lien credit facility, and our 'CCC+' issue-level and'6' recovery rating on the company's existing second-lien term loan followingthe completion of the transaction, as we expect these credit facilities to berepaid in full at that time.

Pro forma for the transaction, we project approximately $1 billion of fundeddebt outstanding for the company.

The rating affirmation on ABG reflects our expectation that the company willcontinue to generate healthy cash flow and leverage will decline to the mid5.0x area next year. We continue to expect the company's financial policy tobe aggressive, including further debt-financed acquisitions and shareholderreturns, and expect leverage to be around 6x.

The outlook on ABG is stable. We believe ABG will continue to benefit from itsrecent acquisitions and stable contracted business, and it will graduallyimprove its credit metrics through better operating performance and over thenext year. We expect leverage to remain high at above 5x because of the

company's growth strategy, as well as the aggressive financial policy typicalof financial sponsor ownership.

We could lower the ratings if the company cannot generate expected levels ofroyalty income, or if the company issues more debt without sufficientincremental EBITDA from acquisitions, such that debt to EBITDA increases toabove 7x on a sustained basis. We estimate this could occur if EBITDA declinesby approximately 10% (assuming current debt levels) or if debt increases byapproximately $150 million at current EBITDA levels.

An upgrade is unlikely over the next year because of the company's aggressivefinancial policy, as we project the company will remain acquisitive, with debtto EBITDA exceeding 5x. Longer term, we would consider an upgrade if thecompany improves credit metrics, perhaps from a less aggressive financialpolicy, such that it sustained debt-to-EBITDA below 5x. We believe for such anevent to occur the financial sponsors would need to reduce its collectiveownership to below 40%.


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