Rating Action: Moody's assigns B2 CFR to acquirer of Strategic Partners Acquisition Corp.
Global Credit Research - 11 Jan 2021
New York, January 11, 2021 -- Moody's Investors Service ("Moody's") assigned a B2 Corporate Family Rating ("CFR") and a B2-PD Probability of Default Rating ("PDR") to New Trojan Parent, Inc. the acquirer of Strategic Partners Acquisition Corp. ("SPAC"), an indirect parent company of branded medical apparel company Careismatic, Inc. ("Careismatic" or, combined, the "company"). Moody's also assigned a B1 rating to New Trojan Parent's senior secured first lien credit facilities, consisting of a $100 million revolver expiring in 2026 and a $575 million senior secured term loan due 2028, and a Caa1 rating to its $140 million senior secured second lien credit facility due 2029. The rating outlook is stable.
Proceeds from the term loans, along with new common equity and management equity rollover equity, were used to fund the acquisition of SPAC by private equity firm Partners Group ("Partners" or the "Sponsor"). The ratings are subject to review of final documentation. All ratings on the current SPAC entity are unaffected by today's actions, and will be withdrawn upon full repayment of the debt obligations.
"The ratings reflect the stable and growing demand for medical uniforms, which has recently accelerated due to global coronavirus pandemic, the low fashion risk and replenishment nature of the product, and high operating margins," stated Mike Zuccaro, Moody's Senior Analyst. "However, the ratings are constrained by the company's high pro forma leverage of over 6.75 times for the LTM period ending September, modest scale, and narrow product focus," Zuccaro added. The ratings also reflect governance considerations including financial strategies that will be dictated by its private equity sponsor.
Moody's took the following rating actions:
..Issuer: New Trojan Parent, Inc.
.... Probability of Default Rating, Assigned B2-PD
.... Corporate Family Rating, Assigned B2
.... GTD Senior Secured 1st Lien Term Loan, Assigned B1 (LGD3)
.... GTD Senior Secured 1st Lien Revolving Credit Facility, Assigned B1 (LGD3)
.... GTD Senior Secured 2nd Lien Term Loan, Assigned Caa1 (LGD6)
..Issuer: New Trojan Parent, Inc.
....Outlook, Assigned Stable
New Trojan Parent, Inc.'s (dba "Careismatic") B2 CFR reflects its modest scale and narrow product focus on a single apparel category (predominantly medical uniforms and scrubs) and high customer concentration, which exposes the company to changes in retailer merchandising and pricing strategies. The ratings also reflect governance considerations including financial strategies that will be dictated by its private investment firm, including a tolerance for high leverage and the potential for debt-financed acquisitions or dividend distributions. While proforma Debt-to-EBITDA is very high at over 6.75x as of September 2020, Moody's expects significant improvement over the next 12-18 months, to less than 5.75x, due to expectations for continued earnings growth and material debt reduction. Mitigating these risks are the stable and growing demand for medical uniforms, which has recently accelerated due to global coronavirus pandemic, and the category's low fashion risk and the replenishment nature of the product which drive a typically stable and predictable revenue stream. The company also benefits from its consistent high operating margins, portfolio of well-recognized brands within its market, good liquidity and pro forma EBITA interest coverage of around 2.5x.
The stable outlook reflects Moody's view that credit metrics will improve over the near term due to revenue and earnings growth and material debt reduction with excess cash flow, and that liquidity will remain good, with strong positive free cash flow generation due to working capital reductions.
The B1 ratings on the first lien credit facilities reflect their first lien position on substantially all assets of the company and guarantors. The Caa1 rating on the second lien credit facility reflects its second lien position on the same collateral. The credit facilities are guaranteed by CBI Intermediate, Inc. (New Trojan Parent, Inc.'s parent company) and all material domestic subsidiaries. The term loans do not contain any financial maintenance covenants, while the revolver contains a maximum springing first lien net leverage ratio covenant. Final terms are expected to contain covenant flexibility for transactions that could adversely affect creditors.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if the company's overall operating performance, liquidity or relationships with key customers deteriorate, or if financial policies become more aggressive such as through material debt-financed dividends. Credit metrics include debt/EBITDA maintained above 6 times or EBITA/interest expense falling below 1.75 times.
The ratings could be upgraded if the company diversifies its product line, meaningfully increases its size and reduces its reliance on key customers by growing in other channels, while maintaining very good liquidity and a commitment to maintaining conservative financial policies and credit metrics, including debt/EBITDA sustained below 4.5 times.
New Trojan Parent, Inc. is a new entity created to acquire Strategic Partners Acquisition Corp. ("SPAC") by private equity firm Partners Group. SPAC is the parent company of Careismatic Brands, Inc., which designs and distributes medical and school uniform apparel and related products globally. Careismatic operates using various trademarks including Cherokee and Dickies.
The principal methodology used in these ratings was Apparel Methodology published in October 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1182038. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For 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.
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Michael M. Zuccaro 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 Margaret Taylor 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
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