Moody's assigns Nesco II B2

Moody's Investors Service said it assigned ratings to Nesco Holdings II, Inc., including a B2 corporate family rating, a B2-PD probability of default rating and a B3 rating to its planned $920 million of second-lien senior secured notes. Moody's also assigned an SGL-3 speculative grade liquidity rating.

“The combination of Nesco and CTOS creates one of the largest providers in the U.S. of bucket trucks, digger derricks, and other specialty equipment. Their equipment is experiencing high demand from utility contractors that service the aging U.S. electrical grid and telecom companies performing 5G installations. However, Moody's adjusted pro forma financial leverage is elevated at roughly five times debt-to-EBITDA, excluding management anticipated synergies at the outset of the transaction,” the agency said in a press release.

Proceeds, equity contributions and up to $400 million of borrowings from Nesco's new unrated $750 million asset-based lending facility due 2026 will be used to finance the $1.475 billion acquisition of CTOS, LLC (Custom Truck One Source), repay Nesco's debt and fund prepayment penalties and other transaction-related fees and expenses. Moody's plans to withdraw all the ratings from the legacy Nesco (the borrowing entity being Capitol Investment Merger Sub 2, LLC) and the CTOS entities after the retirement of their respective debt.

The outlook is stable, reflecting the forecast that end-market demand will remain strong, and use some of its free cash flow to lower ABL borrowings, Moody’s said.

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