OREANDA-NEWS. S&P Global Ratings today placed its 'B' corporate credit rating on ALG Intermediate Holdings B. V. on CreditWatch with negative implications. The action follows ALG's announcement it has entered into an agreement with KKR and an affiliate of KSL Capital Partners to be acquired. The financial terms of the transaction have not been disclosed.

We expect that all of ALG's debt, including its $20 million senior secured revolving credit facility due 2022, $140 million ($118 million outstanding) senior secured first-lien term loan due 2020, and its $75 million ($74 million outstanding) second-lien term loan due 2021 will be repaid when the transaction closes because there is a change of control provision in the credit agreement. As a result, we are not placing ALG's issue-level ratings on CreditWatch.

"The CreditWatch listing reflects that the purchase price, terms of the transaction, and the proposed capital structure are unknown, and the possibility that the acquisition will result in incremental leverage and a lower corporate credit rating on ALG," said S&P Global Ratings credit analyst Daniel Pianki.

While the terms of the planned acquisition have not been disclosed, we expect the company to pursue additional debt financing that will increase leverage. Even though our current base case forecast for adjusted debt to EBITDA is below 3x in 2016, our current highly leveraged financial risk assessment on ALG reflects the company's financial sponsor ownership and our expectation that financial sponsors frequently extract cash or otherwise increase leverage over time. Furthermore, while the current 'B' corporate credit rating could be affirmed because ALG currently has good leverage capacity, we believe significant debt issuance to fund the acquisition could put downward pressure on the rating, depending on the amount and cost of the debt raised.

We will resolve the CreditWatch listing once information about the purchase price and the terms of the transaction become available, and we can assess the company's proposed capital structure, financial policy, and strategic direction. The acquisition is expected to close in the first quarter of 2017.