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Spin Holdco, Inc. -- Moody's affirms Spin Holdco's B3 CFR and assigns B3 to first lien senior secured credit facility; outlook is stable

·15 min read

Rating Action: Moody's affirms Spin Holdco's B3 CFR and assigns B3 to first lien senior secured credit facility; outlook is stableGlobal Credit Research - 19 Feb 2021New York, February 19, 2021 -- Moody's Investors Service, ("Moody's") affirmed Spin Holdco, Inc.'s ("Spin") Corporate Family Rating at B3, Probability of Default Rating at B3-PD and assigned a B3 rating to the company's proposed senior secured credit facility. The outlook is stable.Proceeds will be used to refinance the company's entire capital structure including $1,785 million of existing first lien and $185 million of second lien term debt outstanding. The existing ratings on these debt instruments will be withdrawn at closing. Post this transaction, Spin's nearest maturity will be 2026.The B3 rating on the new credit facility is the same as the CFR reflecting the fact that the revolving credit facility and term loan will be the preponderance of debt in the capital structure. By refinancing the capital structure with all first lien term debt, loss absorption provided by the existing second lien term debt will be eliminated.The stable outlook reflects Spin's predictable, reoccurring revenue stream, robust EBITDA margin, and stable demand from a diversified customer base. Affirmations: ..Issuer: Spin Holdco, Inc. .... Corporate Family Rating, Affirmed B3.... Probability of Default Rating, Affirmed B3-PDAssignments:..Issuer: Spin Holdco, Inc.....Senior Secured 1st Lien Term Loan, Assigned B3 (LGD3)....Senior Secured Revolving Credit Facility, Assigned B3 (LGD3) Outlook Actions: ..Issuer: Spin Holdco, Inc. ....Outlook, Remains Stable RATINGS RATIONALE Spin's B3 CFR reflects the company's position as the leading national service provider of community and in-home laundry and air and vacuum equipment in a highly fragmented industry. The company generates a steady, predictable revenue stream and robust EBITDA margin from serving its diversified customer base with a large network of installed equipment.The B3 CFR is constrained by Spin's high leverage, aggressive financial policy and acquisitiveness. Pro forma this transaction, Spin's remains the same at 6.6x for fiscal year 2021 ended March 31. The company remains focused on gaining operating efficiencies, implementing its digital capabilities across its vast installed base, and deleveraging.Spin's good liquidity profile is supported by an undrawn $140 million revolving credit facility expiring in 2026 and free cash flow.The first lien credit agreement is preliminary and may contain certain provisions including an incremental debt covenant consisting of (i) the greater of $265 million and 75% of Consolidated EBITDA for the trailing 4 quarter EBITDA; plus (ii) an unlimited amount so long as the consolidated first lien net leverage ratio is equal to or less than the closing date consolidated first lien net leverage (for pari passu debt). An amount up to the greater of $175 million financing may be incurred with an earlier maturity than the existing debt. The credit agreement may also allow the transfer of assets to unrestricted subsidiaries, with no additional "blocker" provisions restricting such transfers. There is also a requirement that only wholly-owned subsidiaries act as subsidiary guarantors, raising the risk that guarantees may be released following a partial change in ownership. Cash proceeds from asset sales exceeding a certain amount will be subject to mandatory repayment of the credit facility unless reinvested or committed within 365 days (plus a potential 6 month extension). This preliminary credit agreement also allows a Permitted Change of Control for 24 months, subject to certain requirements. Furthermore, the revolving credit facility is expected to contain a springing financial maintenance covenant triggered at 30% of utilization and set at a 30% cushion to first lien net leverage ratio, while the term loan will not expressly benefit from any financial maintenance covenants. The above are proposed terms and the final terms of the credit agreement can be materially different.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if adjusted debt to EBITDA is sustained below 5.5x, the company shows an improvement in free cash flow and maintains a good liquidity profile.The ratings could be downgraded if adjusted debt to EBITDA is approaching 7.0x and there is a deterioration in liquidity.Headquartered in Plainview, New York, Spin is a wholly owned subsidiary of CSC ServiceWorks, Inc. Spin is the largest provider of outsourced laundry equipment services for multi-family housing properties in North America. The company also provides air and vacuum vending equipment services at convenience stores and gas stations nationwide. CSC ServiceWorks is a privately - owned company, whose two largest equity holders are Pamplona Capital and Ontario Teacher's Pension Plan.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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. Scott Manduca Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dean Diaz Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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