Moody’s drops BDF loan to B2

Moody's Investors Service said it affirmed BDF Acquisition Corp.'s B2 corporate family rating and B2-PD probability of default rating, and downgraded the company's first-lien term loan to B2 from B1 following the announcement of a proposed $190 million add-on to the facility.

The outlook is stable.

BDF Acquisition is the entity created to effect the acquisition of Bob's Discount Furniture in February 2014 by Bain Capital, the company's majority shareholder.

Proceeds from the proposed add-on will be used to repay the company's $80 million second-lien term loan due 2022 in full, fund a $100 million distribution to shareholders, and pay related fees and expenses. The company will also put $5 million of cash on the balance sheet.

Moody's estimates lease adjusted leverage pro-forma for the proposed transaction will approach 6 times for the LTM period ending April 3, with interest coverage in the low-to-mid 1 times range. The company's pro-forma credit metrics push the boundaries of the B2 rating, however the agency expects continued solid operating performance will drive leverage to the mid-to-low 5 times range, with interest coverage in the mid-1 times range over the next 12 to 24 months.

Over the LTM period, Bob's has seen same store sales growth consistently in the high single-digit to low double-digit range, with relatively stable EBITDA margins, and EBITDA growth (Moody's adjusted) approaching 20%.

Moody’s said the downgrade to Bob's first-lien term loan reflects the expected repayment of the company's $80 million second-lien term, loan which provided first loss absorption within the capital structure. The removal of the second-lien term loan eliminated the support provided to the first-lien term loan per Moody's Loss Given Default Methodology, which resulted in a one-notch downgrade to the instrument.

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