S&P: CWGS Enterprises LLC 'B+' Corporate Credit Rating Affirmed On Increased Term Loan And IPO Plans; Outlook Stable
At the same time, we affirmed our 'BB' issue-level rating, with a recovery rating of '1', on CWGS's proposed upsized aggregate senior secured credit facility (consisting of a $20 million revolving facility due 2018 and an upsized term loan due 2020 that will have $820 million outstanding, including the $110 million add-on). The '1' recovery rating indicates our expectation for very high (90% to 100%) recovery for lenders in the event of a payment default despite incremental debt. The recovery rating remains '1' despite the incremental debt because of a modest upward reassessment of our emergence enterprise value on CWGS, due primarily to additional RV dealership acquisitions and an increase in the level of fixed charges that would trigger a default. We expect the company to use proceeds from the term loan add-on to fund a $75 million distribution to owners and to acquire RV dealerships, including associated real estate.
"The affirmation reflects that the proposed incremental leverage the company would assume upon close of the transaction does not meaningfully increase CWGS's financial risk, and the anticipated leverage increase to the high-3x area in 2016 from the transaction remains comfortably below our 5x debt to EBITDA and 2x EBITDA interest coverage downgrade thresholds," said S&P Global Ratings credit analyst Daniel Pianki.
The stable outlook reflects our expectation for good operating performance and adequate liquidity through 2017. Although we expect adjusted debt to EBITDA at CWGS to occasionally spike to the 4x area for acquisitions and distributions to shareholders, this represents a very good cushion compared with our 5x adjusted debt to EBITDA downgrade thresholds incorporating high EBITDA volatility over the economic cycle.