Research Update: SRS Distribution Inc. 'B' Rating Affirmed, Outlook Still Negative On High Debt Leverage; New Term Loan Rated 'B'

U.S.-based SRS Distribution Inc. plans to issue an incremental $250 million first-lien term loan add-on and use proceeds to repay asset-based loan (ABL) revolving credit borrowings and fund future acquisitions. The additional term loan will raise pro forma debt leverage to about 7.35x from third-quarter estimated debt leverage of 7.1x. These measures are both down significantly from 9x at the time of the company's acquisition by Leonard Green in May 2018, but still weak for the 'B' rating. We project interest coverage on funded debt, including our operating lease adjustments, of approximately 2.7x. We are affirming our 'B' issuer credit rating on SRS. The outlook remains negative. At the same time, we are assigning a 'B' issue-level and '4' recovery

...- U.S.-based SRS Distribution Inc. plans to issue an incremental $250 million first-lien term loan add-on and use proceeds to repay asset-based loan (ABL) revolving credit borrowings and fund future acquisitions. - The additional term loan will raise pro forma debt leverage to about 7.35x from third-quarter estimated debt leverage of 7.1x. These measures are both down significantly from 9x at the time of the company's acquisition by Leonard Green in May 2018, but still weak for the 'B' rating. We project interest coverage on funded debt, including our operating lease adjustments, of approximately 2.7x. - We are affirming our 'B' issuer credit rating on SRS. The outlook remains negative. At the same time, we are assigning a 'B' issue-level and '4' recovery rating to the company's new incremental term loan. Our ratings on the company's existing senior secured debt and unsecured senior notes are unchanged. - The negative outlook reflects the still high debt leverage and delayed deleveraging...

Research Update