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TEXT-S&P rates VWR Funding proposed debt
2012年5月11日 / 下午5点33分 / 5 年前

TEXT-S&P rates VWR Funding proposed debt

Overview	
     -- U.S. laboratory products distributor VWR Funding is amending and 	
extending portions of its senior secured revolving credit facility and term 	
loan.	
     -- We are assigning our 'B+' and '2' senior secured debt and recovery 	
ratings to the proposed amended and extended revolver maturing 2016 and term 	
loan maturing 2017; all existing ratings are unchanged.	
     -- We believe any increase in interest costs will not be significant 	
enough to alter our view of VWR's liquidity or financial risk profile, while 	
the maturity extension will alleviate some of the refinancing risk looming in 	
2014.	
     -- Our stable rating outlook on VWR reflects our expectations for 	
consistent or improving liquidity, moderating sales growth, modest margin 	
improvement, and nominal improvement in substantial debt leverage.	
	
Rating Action	
On May 11, 2012, Standard & Poor's Ratings Services assigned its 'B+' rating 	
to Radnor, Pa.-based laboratory products distributor VWR Funding Inc.'s 	
amended and extended portions of its senior secured revolver maturing in 2016 	
and term loan maturing in 2017. We also assigned our '2' recovery rating to 	
the debt, indicating our expectation for substantial (70% to 90%) recovery for 	
senior secured lenders in the event of a payment default. The 'B+' rating on 	
the facility is one notch higher than our 'B' corporate credit rating on the 	
company, in accordance with our notching criteria for a recovery rating of 	
'2'. 	
	
Our 'B+' issue-level and '2' recovery ratings on the unextended portions of 	
the senior secured revolver and term loan remain unchanged. All other ratings 	
remain unchanged and the outlook remains stable.	
	
The amount and interest rate on the amended and extended portion of the credit 	
facilities will be determined by market conditions. We expect the transaction 	
to be debt neutral and have assumed that any increase in interest rates will 	
not be significant enough to negatively alter our view of the company's 	
liquidity or financial risk profile. The maturity extensions will also 	
alleviate some of the company's refinancing risk in 2014.	
	
Rationale	
The ratings on VWR overwhelmingly reflect the company's "highly leveraged" 	
financial risk profile because of an exceptionally heavy leveraged buyout 	
(LBO)-related debt burden, and exposure to the improving, but still weak, 	
global economy. Madison Dearborn Partners LLC (MDP) acquired VWR in 2007, 	
markedly increasing debt and debt-like obligations. Given nearly $3 billion of 	
debt, $120 million of operating lease obligations, and viewing MDP's preferred 	
investment as debt, adjusted debt is about $5.1 billion. This level of 	
adjusted debt is unlikely to change over the next few years, as Standard & 	
Poor's expects accretion of the pay-in-kind (PIK) preferred stock will offset 	
scheduled bank loan amortizations. We view the company's business risk profile 	
as "satisfactory" despite its narrow business focus.	
	
We project only modest leverage improvement, with adjusted debt to EBITDA 	
remaining over 11x in 2012 and 2013. We can reasonably expect some modest 	
improvements in EBITDA, given VWR's solid business position and operating 	
efficiency efforts. As of Dec. 31, 2011, adjusted debt to EBITDA was 12.6x, 	
down from a peak in March 2008 of 15.4x.	
	
We now believe that VWR may underperform our 2012 revenue expectations for 	
high-single-digit growth, which we published in November 2011. The company's 	
revenue in the March 2012 quarter was 4%, and we now expect moderate 2012 	
growth because of slow R&D spending growth by large pharmaceutical customers 	
(low-single-digit growth), as well as budget uncertainties for its industry 	
(mid-single-digit growth) and government (low-single-digit declines) 	
customers. Our growth expectations for VWR are still well above our 	
expectations for about 2% U.S. GDP growth in 2012. We project modest margin 	
improvements in 2012 and 2013. EBITDA margins were essentially flat in 2011 	
(9.8% margin) after gains through cost controls and pricing increases in 2010 	
(10.0%) and 2009 (9.5%). VWR management took several opportunities to improve 	
margins, including eliminating near-duplicate product offerings, improved 	
pricing discipline, increasing the proportion of private-label goods sold, and 	
moving back-office operations off shore. We believe that the integration of 	
acquisitions and growth in higher margin private-label goods will drive future 	
margin improvements.	
	
VWR's business risk profile remains satisfactory. It is the second-largest 	
distributor of products to the global research laboratory market, playing a 	
critical role in the market's efficient operation. The combination of the 	
company's scale and its long-term customer relationships poses very high 	
barriers to competitor entry. Consumables, which provide a recurring revenue 	
stream, account for roughly 75% of sales. However, we believe VWR is somewhat 	
narrowly focused as a distributor of laboratory products.	
	
Liquidity	
We view VWR's liquidity as "adequate," with sources of cash that will exceed 	
mandatory uses of cash over the next 12-24 months. Relevant aspects of VWR's 	
liquidity are:	
     -- Sources of liquidity should exceed uses by 1.2x or more.	
     -- Sources of liquidity as of March 31, 2012, included cash and cash 	
equivalents of $143 million.	
     -- The company generated $139 million of operating cash flow in 2011.	
     -- We project 2012 operating cash flow of more than $100 million; this 	
amount of cash flow is very small relative to the company's adjusted debt 	
burden.	
     -- We expect the company to maintain significant availability under its 	
existing and extended revolving credit facilities, which we expect to total 	
$250 million. 	
     -- VWR had $228 million available for borrowing under its revolver as of 	
March 31, 2012.	
     -- In November 2011, VWR entered into a three-year, $200 million accounts 	
receivables securitization facility, which provides some additional liquidity; 	
however, the company had only $58 million available under the accounts 	
receivable facility as of March 31, 2012.	
     -- We expect uses of cash to include capital expenditures of roughly $40 	
million to $50 million annually.	
     -- The existing credit facility does not contain any financial 	
maintenance covenants.	
     -- The company also had a $246 million compensating balance it used in a 	
global cash-pooling facility.	
     -- We view VWR's liquidity as only adequate given our view of its limited 	
ability to absorb high-impact, low-probability events without refinancing.	
	
Outlook	
Our rating outlook on VWR is stable, given our view of operating trends and 	
expectation for very modest improvement in credit measures. Absent a 	
significant reduction in leverage, we do not expect to raise the ratings in 	
the foreseeable future. The ratings assume that VWR will maintain or improve 	
its liquidity over the next 12 months. 	
	
We could lower our ratings on VWR if operating issues weaken liquidity to a 	
point where a default was more probable within two years due to cash outflows. 	
We believe that this could be caused by an unlikely 10% sales decline and a 	
100-basis-point reduction in margins.	
	
Related Criteria And Research	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008	
	
Ratings List	
	
VWR Funding Inc.	
 Corporate Credit Rating                B/Stable/--	
	
New Ratings	
	
VWR Funding Inc.	
 Senior Secured	
  Extended revolving credit facility    B+                 	
  bank ln due 2016       	
   Recovery Rating                      2                  	
  Extended term loan B bank ln due 2017 B+                 	
   Recovery Rating                      2

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