Al Alpine AT Bidco

The stable outlook reflects our view that the General Electric Co. (GE) DP carve-out will be well managed, with Al Alpine realizing manufacturing efficiencies. We expect healthy S&P Global Ratings-adjusted EBITDA margins of about 16-17% in 2020 supported by revenue growth and operating efficiencies. We forecast a highly leveraged capital structure with S&P Global Ratings-adjusted debt-to-EBITDA at about 7.8x at year-end. We also expect 2019 to be a transitional year with break-even reported FOCF and lower adjusted EBITDA margins of 12%-13% due to one-off carve-out and restructuring-related costs of about $108 million. However, we anticipate significantly positive reported FOCF thereafter, at above $100 million, to propel leverage reduction. We view funds from operations (FFO) to cash interest greater than 2.5x

...Al Alpine is expected to sustain its growth despite softer global economy. The company's business depends more on long-term global policies on energy and favorable trends seen in the DP sector rather than on GDP levels. This, along with a large installed base, recurring revenue, and good share of services, should allow the company to maintain its growth in the next two years and sustained performance over the business cycle. Despite gradual deleveraging anticipated from 2020, we expect leverage to be high, at above 6.0x. The capital structure is highly leveraged with S&P Global Ratings-adjusted debt-to-EBITDA at about 8.6x at year-end 2018 and forecast at 12.0x-12.5x by year-end 2019. Backed by higher margins, efficient working capital management, and moderate capital expenditure (capex), we anticipate Al Alpine to generate consistently positive reported free operating cash flow (FOCF) of 100 million or more from 2020, which should facilitate a deleveraging path. However, we also take into...

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