Moody’s gives B2 to Alphia, loans

Moody's Investors Service said it assigned a B2 corporate family rating and B2-PD probability of default rating to Max US Bidco Inc. (Alphia). Concurrently, the agency assigned a B2 rating to the planned senior secured first-lien credit facility. The facility will consist of a $110 million revolver expiring in October 2028 and a $640 million first-lien term loan due in October 2030. The outlook is negative.

The term loan proceeds with a new common equity contribution by PAI Partners will fund a leveraged buyout of Alphia, including repayment of the company's debt, along with transaction-related fees and expenses. The $110 million revolver will be undrawn at close and is higher than Alphia's $40 million revolver. Moody's will withdraw all current ratings of Alphia, Inc., relating to the capital structure under J.H. Whitney Capital Partners' ownership, including the B2 CFR upon the close of the transaction and the repayment of its debt obligations.

“The ratings reflect Alphia's high leverage at the close of the LBO and weak free cash flow expectations for the rating category. Moody's projects debt-to-EBITDA leverage of 6.5x (on a Moody's adjusted basis) at the close of the transaction will decline to a low 5x range by 2024 through earnings growth. Moody's expects free cash flow to exceed $30 million in 2024 despite the meaningful increase in interest expense and large investments planned over the next two years to support capacity expansion projects. The free cash flow profile limits the company's ability to reduce leverage through debt reduction and deleveraging is highly reliant on earnings growth,” the agency said in a press release.

The outlook reflects the doubts on when Alphia's volume will steady, as well as the execution risk to win new business, boost production and widen margins to generate the earnings growth necessary to reduce debt-to-EBITDA leverage to a low-to-mid 5x range over the next 12 months, Moody’s said.

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