OREANDA-NEWS. S&P Global Ratings today said it affirmed its 'B-' long-term corporate credit rating on Kronos Acquisition Holdings Inc. based on its expectation that the proposed transaction should support fixed charges and will not have a material impact on credit metrics and cash flows. The outlook is stable.

Kronos is proposing to refinance its US$1.085 billion term loan with a new US$235 million add-on to its existing US$390 million senior unsecured notes. The company will use the proceeds from the unsecured notes to repay a portion of the term loan outstanding that was issued in April 2016 to fund the Prestone Group acquisition. The debt repayment improves the recovery prospects on Kronos' first-lien term loan.

As a result, S&P Global Ratings affirmed its 'B-' issue-level rating on the company's first-lien term loan and revised its recovery rating on the debt to '3' from '4' based on these improved recovery prospects. The '3' recovery rating indicates our expectation of meaningful (50%-70%, lower half of the range) recovery in default.

"We base the affirmation and revised recovery rating on our expectation that the proposed transaction should support fixed charges, and lead to better recovery prospects for the first-lien term loan," said S&P Global Ratings credit analyst Nayeem Islam.

In addition, S&P Global Ratings affirmed its 'CCC' issue-level rating on Kronos' senior unsecured notes, including the proposed US$235 million add-on. The '6' recovery rating on the notes is unchanged, reflecting our expectation of negligible (0%-10%) recovery in a default scenario.

The ratings on Kronos reflect S&P Global Ratings' view of the company's weak business risk profile and highly leveraged financial risk profile. We do not expect the proposed transaction to have a material impact on the company's fixed charges as higher interest will be offset by lower debt amortization. As a result, we expect Kronos will maintain adequate liquidity and generate sufficient cash flows to cover approximately US$150 million of fixed charges relating to interest, capital expenditures, and debt amortization. The higher cost debt will modestly lower Kronos' EBITDA interest coverage, which we believe will remain at about 2x. For a detailed analysis of Kronos' business and financial risk profiles, please refer to the company's most recent researchupdate published July 22, 2016, on RatingsDirect.

The stable outlook reflects our expectation that Kronos will improve its earnings and maintain EBITDA interest coverage at about 2x. We also expect the company to generate sufficient cash flows to cover fixed charges and maintain adequate liquidity.

We could lower the ratings if Kronos is unable to generate sufficient operating cash flows to cover approximately US$150 million of fixed charges for interest, capital expenditures, and debt amortization. We believe such a scenario would be precipitated if the company's operating performance weakens due to lower demand, operational missteps, or significant restructuring expenses.

We are unlikely to raise the ratings over the next year, given Kronos' aggressive financial policies, high debt burden, and limited deleveraging prospects owing to relatively large fixed charges. That being said, we could raise our ratings if Kronos improves its credit metrics, including fully adjusted debt leverage below 6x and EBITDA interest coverage approaching 3x.