Moody’s assigns Vertical Topco B2

Moody’s Investors Service said it assigned a B2 corporate family rating and a B2-PD probability of default rating to Vertical TopCo III GmbH, a future intermediate holding company of ThyssenKrupp Elevator AG.

Moody’s also assigned B1 instrument ratings to the proposed €500 million (equivalent) senior secured term loan A, €3.05 billion (equivalent) senior secured term loan B, €2 billion (equivalent) of senior secured notes, €1 billion of senior secured floating rate notes and €2 billion of unfunded senior secured facilities for cash and guarantees, issued by Vertical Midco GmbH and Vertical U.S. Newco Inc. The agency assigned a Caa1 rating to the proposed €1.7 billion (equivalent) of senior unsecured notes, issued by Vertical Holdco GmbH. The outlook on all ratings is stable.

Proceeds will be used to finance the acquisition of ThyssenKrupp Elevator from ThyssenKrupp AG by private equity firms Cinven and Advent International, as well as the Abu Dhabi Investment Authority, Singaporean GIC and the German RAG foundation, for a purchase price of €17.2 billion plus expected transactions fees and expenses. Thyssenkrupp, through a €1.25 billion reinvestment, will keep around a 19% stake in the group. The acquisition will be further financed with €6.7 billion of sponsor cash equity and €2 billion PIK notes outside the restricted group, which Moody’s considers as equity.

“Thyssenkrupp Elevator is initially very weakly positioned in the B2 category driven by its high starting leverage that requires performance improvements for a more solid positioning very quickly and leaves no cushion for underperformance. In addition, the rating recognizes ThyssenKrupp Elevator’s resilient business model with a sizeable share of recurring service and modernization revenues, attractive industry fundamentals and our expectation of strong profitability improvements and positive free cash flow generation over the next two years”, said Goetz Grossmann, a Moody’s vice president, senior analyst and lead analyst for ThyssenKrupp Elevator, in a press release.

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