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MajorDrive Holdings IV, LLC -- Moody's assigns ratings to MajorDrive Holdings IV, LLC. (Club Car), with CFR at B3, first lien at B2, and senior unsecured notes at Caa2; outlook stable

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Rating Action: Moody's assigns ratings to MajorDrive Holdings IV, LLC. (Club Car), with CFR at B3, first lien at B2, and senior unsecured notes at Caa2; outlook stableGlobal Credit Research - 30 Apr 2021New York, April 30, 2021 -- Moody's Investors Service assigned ratings to MajorDrive Holdings IV, LLC., parent company of Club Car, LLC. These include a B3 corporate family rating (CFR) and a B3-PD probability of default rating. Moody's also assigned a B2 to the proposed $775 million first lien term loan, and a Caa2 rating to $450 million of senior unsecured notes. The rating outlook is stable. These are first-time ratings for Club Car.Proceeds from the term loan and notes, along with $500 million in new equity, will be used to fund the acquisition of the company by financial sponsor Platinum Equity Advisors, LLC, from the company's current parent, Ingersoll Rand, Inc. Club Car will have high financial leverage as a consequence of this financing, which reflects high corporate governance risk.Assignments:..Issuer: MajorDrive Holdings IV, LLC....Probability of Default Rating, Assigned B3-PD....LT Corporate Family Rating, Assigned B3....$775M Senior Secured Term Loan, Assigned B2 (LGD3)....$450M Senior Unsecured Notes, Assigned Caa2 (LGD5)Outlook Actions:..Issuer: MajorDrive Holdings IV, LLC....Outlook, Assigned StableRATINGS RATIONALEClub Car's B3 CFR reflects the high leverage that will ensue from the debt-funded acquisition of the company by Platinum. On total debt of approximately $1.2 billion, Moody's estimates Club Car's 2021 pro forma leverage at above 8x debt-to-EBITDA. Such high leverage, if maintained over several years, would limit the company's ability to invest in growth over that time. Over the longer term, persistently-high leverage would present difficulties in potential re-financing activities. It is therefore critical that the company reduces leverage through earnings growth along with the application of substantially all free cash flow toward debt repayment over the next two years to achieve leverage ratios under 7x. As well, as a spinoff from its current parent Ingersoll Rand, the B3 rating reflects Club Car's lack of operating history as an independent company. This adds uncertainty to the timing and degree to which Club Car can stand up independent operations while at the same time achieving cost savings as planned. Additionally, Club Car's ratings are constrained by its limited product offerings when compared to more diversified peers, with high exposure to the US consumer market -- the golf segment in particular.However, Moody's recognizes Club Car's leadership within its markets that temper many of the risks. Club Car is one of only three major competitors in the golf and consumer low speed vehicle markets, along with a smaller offering to commercial customers. Club Car's premium brand offering helps the company to protect and grow its competitive position in key markets. This supports Moody's expectations that the company will sustain EBITA margins of 12% to 13% over the next few years. Moreover, on Moody's expectations of steady revenue growth, these margins will produce solid free cash flow over that period. This will allow Club Car to repay substantial amounts of the term loan, which will help reduce debt-to-EBITDA to close to 6x by 2023.Moody's assesses Club Car's liquidity as good. Although the company will have only minimal cash balances on close of the Platinum acquisition, Moody's expects that Club Car will generate free cash of $40 million to $60 million annually over the next few years, Club Car will likely have full access to its $100 million revolving credit facility as Moody's expects little or no drawings over that time. This facility has a springing fixed charge coverage covenant that will only apply in the event of minimal availability. It is therefore not likely to be tested over the next few years.The stable outlook reflects Moody's expectations of good demand for Club Car's vehicles over the next two years. This will support modest sales growth in the second half of 2021 and 2022. Moody's expects that Club Car will experience modest integration costs, without material disruption in business after its separation from Ingersoll Rand.The first lien term loan is rated B2, one notch higher than the CFR, reflecting the loss absorption provided by second lien debt and other unsecured liabilities in the event of default per Moody's Loss Given Default for Speculative-Grade Companies methodology. The Caa2 rating on the notes reflects that class of debt's junior position to a significant amount of first lien debt in the capital structure and the substantial loss that would be incurred by noteholders in a default.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade Club Car's ratings if the company repays debt to levels that allow the company to sustain debt-to-EBITDA below 6x. As well, the company would need to demonstrate conservative financial policies to warrant an upgrade, with no material distribution of cash to owners. Club Car will also need to maintain is solid market positions and margin to support an upgrade.Ratings could be downgraded if operating results fall short of plans, possibly due to difficulties setting up standalone operations or unexpected weakening in demand for Club Car's vehicles over the next two years. Diminishing earnings or free cash flow at breakeven levels or below could also prompt a downgrade, as this would impair the company's ability to de-lever. As well, ratings could be downgraded if the company makes a material distribution of capital to its owners before establishing lower leverage.Following are some of the preliminary credit agreement terms, which remain subject to market acceptance.As proposed, Moody's expects the new credit facility to provide covenant flexibility that if utilized could negatively impact creditors. Notable terms include the following:Incremental debt capacity on the term loan is up to the greater of closing date adjusted EBITDA and 100% of LTM pro forma adjusted EBITDA, plus unlimited amounts that are subject to, for first lien debt, first lien net leverage no worse than at closing. Amounts up to $100 million may be incurred with an earlier maturity date than the initial term loan.There are no express "blocker" provisions which prohibit the transfer of specified assets to unrestricted subsidiaries; such transfers are permitted subject to carve-out capacity and other conditions.Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees, with no explicit protective provisions limiting such guarantee releases.There are no express protective provisions prohibiting an up-tiering transaction.The above are proposed terms and the final terms of the credit agreement may be materially different..The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Augusta, Georgia, Club Car is a manufacturer of golf carts and other low-speed vehicles and related aftermarket parts and services. Revenue are approximately $900 million.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. David Berge, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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