WWEX UNI Intermediate Holdings LLC Downgraded To #B-# On Higher Outlook New Debt Rated

Stocks and Financial Services Press Releases Tuesday June 19, 2018 18:06
NEW YORK--19 Jun--S&P Global Ratings

NEW YORK (S&P Global Ratings) June 18, 2018-- S&P Global Ratings today lowered its corporate credit rating on Dallas–based WWEX UNI Intermediate Holdings LLC to 'B-' from 'B'. The outlook is stable.

At the same time, we assigned a 'B-' issue-level rating to WWEX's proposed $70 million revolving credit facility due 2023 and $500 million first-lien term loan due 2025, to be issued by its subsidiaries SMB Shipping Logistics LLC and REP WWEX Blocker LLC. The recovery rating is '3', indicating our expectation for meaningful (50%-70%; rounded estimate: 60%) recovery of principal in the event of payment default.

In addition, we assigned a 'CCC' issue-level rating to WWEX's proposed $200 million second-lien term loan due 2026, also to be issued by SMB Shipping Logistics and REP WWEX Blocker. The recovery rating is '6', indicating our expectation for negligible (0%-10%; rounded estimate: 0%) recovery of principal in the event of payment default.

The downgrade reflects the increase in debt leverage above our previous expectations in connection with the proposed transaction. We expect this transaction will result in pro forma adjusted debt to EBITDA over 7x in 2018. Through both acquisition and organic growth, along with integration initiatives, we believe WWEX will increase earnings and reduce adjusted debt leverage to the 6x area by year-end 2019. Despite our expectation for moderate improvement, we believe credit measures will remain appropriate for the rating over the next 12 months.

The stable outlook on WWEX reflects our expectation that over the next 12 months the company will continue to benefit from its franchise acquisition strategy, which will further increase both its revenue and earnings. Although debt leverage will likely remain elevated following the proposed transaction, we expect the company's key financial ratios to strengthen over the next few years, reflecting the company's increasing profitability as a result of cost saving initiatives for the combined company. Our forecast does not incorporate any further debt-financed dividends or large acquisitions.

We could lower our rating on WWEX in the next 12 months if the company pursues additional debt-financed shareholder returns or acquisitions that lead to negative free operating cash flow, experiences constrained liquidity, or if we view the capital structure as unsustainable. Additionally, we could lower the rating if we believe the company to be vulnerable and dependent upon favorable business, financial, and economic conditions to meet its financial commitments. Although not expected, this could occur if the industry's competitive dynamics shift such that WWEX is unable to honor its agreement with UPS.

Though unlikely over the next 12 months, we could raise our rating if the company generates a higher-than-expected amount of cash flow, causing its FFO-to-debt ratio to improve towards 12% while its debt leverage approaches 5x. We would also need to believe the company's financial sponsor would allow it to sustain this improvement. This could occur because of a stronger-than-expected level of revenue and cash flow that allows management to use a greater-than-expected level of free cash flow for debt reduction.

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