S&P: Dexter Axle Co. 'B+' Senior Secured Term Loan Rating Affirmed On Announcement Of $80 Million Incremental Term Loan
All of our other ratings on Dexter Axle remain unchanged.
The company is pursuing an $80 million incremental term loan to fund its acquisition of Rockwell American, a manufacturer and distributor of trailer parts and accessories. The $80 million term loan will be incremental to the company's existing $310 million term loan. We expect that all of the key terms related to the deal will remain unchanged.
Our corporate credit rating on Dexter Axle reflects the company's significant exposure to the niche industrial and utility (I&U) trailer and recreational vehicle (RV) markets and its high product concentration, as over half of its total sales are related to axles and chassis. These factors are somewhat offset by the company's strong market share in the I&U and RV space and its diverse geographic footprint (approximately 40% of its sales are generated outside the U. S.). We expect the company's adjusted debt-to-EBITDA metric to remain above 4x over the next 12 months, which is consistent with our current rating.
Key analytical factorsOur simulated default scenario assumes a default in 2020 against the backdrop of a sustained economic downturn, which results in a significant decline in construction activity, consumer demand, and--ultimately--demand for the company's products. We assume that the company would be able to successfully re-emerge from a default scenario. Our recovery analysis incorporates the company's $60 million revolving credit facility, proposed $390 million pro forma term loan, €134.9 million term loan, and $65 million of subordinated debt. Simulated default assumptionsWe assume that the company will seek covenant amendments on its path to default--resulting in higher interest costs--and anticipate that it will have drawn approximately 85% of its revolving credit facility. To value Dexter Axle, we applied a 5x multiple to our estimated post default emergence EBITDA of $85 million, which results in a gross enterprise value of about $425 million. We have revised our default emergence EBITDA to $85 million from $80 million to reflect the company's increased scale and size in conjunction with the Rockwell acquisition. Other assumptions include:LIBOR of 350 basis points (bps)at default;A 150 bp increase in the interest margin on the company's revolving credit facility to reflect the likely amendment prior to default; andAll debt amounts include six months of prepetition interest. Simplified waterfallSimulated year of default: 2020Emergence EBITDA: $85 millionImplied emergence value multiple: 5.0xNet enterprise value (after 5% admin. costs): $404 millionValuation split (obligor/nonobligors): 75%/25%Secured debt claims: $587 million--Recovery expectations: 50%-70% (higher end of the range)Unsecured debt claims: $76 million--Recovery expectations: Not rated