Moody’s assigns HD Supply notes B1

Moody's Investors Service said it assigned a B1 rating to HD Supply, Inc.'s proposed $1.25 billion senior secured notes due 2021.

Proceeds will be used to redeem the company's existing 8 1/8% $1.25 billion senior secured notes due 2019, at which time the rating for this debt will be withdrawn.

HD Supply anticipates a reduced rate for the proposed notes relative to the existing notes that are being refinanced. The agency expects the proposed notes to have substantially the same terms and conditions as the existing senior secured notes due 2019 and to rank pari passu to the company's $1 billion senior secured term loan due 2018, which is rated B1.

Roughly $142 million in cash on hand will be used for make-whole premium, accrued interest and related fees and expenses.

HD Supply's B3 corporate family rating and B3-PD probability of default rating are not affected by the proposed transaction. All ratings on HDS' remaining outstanding debt instruments, as well as its SGL-3 speculative grade liquidity rating, remain unchanged.

The outlook is stable.

Moody’s said it views the proposed lower pricing and maturity date extension for the secured notes as credit positives. Cash interest savings could be upwards of $35 million per year.

However, the agency said, HD Supply will not begin to reap the benefits of these lower cash interest payments until late-2018 because it needs to pay for the tender/make-whole premium and related fees and expenses. Although interest payments will be less in absolute terms, the relative size of savings is minimal when considering future cash interest payments of slightly over $400 million per year going forward.

Moody’s anticipates no material improvement in either interest coverage or debt leverage characteristics. Beyond very manageable term loan amortization of about $10 million per year, HD Supply has an extended debt maturity profile with the nearest maturity coming in June 2018 when its bank credit facilities come due.

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