Moody's Investors Service – the rating unit of Moody's Corporation (MCO - Free Report) – assigned a Ba1 rating to the proposed $1.05 billion Senior Facility of Manitowoc Company, Inc. (MTW - Free Report) . The Senior Facility includes a $500 million revolving credit, a $350 million Term Loan A and a $200 million Term Loan B.
The proposed $1.05 billion facility will refinance current outstanding facilities. Thus, the rating on the refinanced facilities will be withdrawn upon completion of the refinancing.
In addition, Manitowoc’s Corporate Family Rating (CFR) has been upgraded by Moody's. Manitowoc now enjoys a CFR of B1, up from B2. The new rating is attributable to the company’s favorable business outlook for both the Crane and Foodservice segments. Moody’s also upgraded Manitowoc’s Senior Unsecured obligations to B2 from B3 and expects that Manitowoc will continue deleveraging over the near term.
Manitowoc’s Probability of Default Rating (PDR) was lifted to B1-PD from B2-PD. Its Speculative Grade Liquidity (SGL) rating was also raised by Moody’s to SGL-2 from SGL-3. The upgrade reflects Manitowoc's good liquidity profile. The rating agency remains optimistic that the company will maintain its present liquidity profile in the next twelve months.
The ratings outlook was revised to stable from positive. This outlook is based on expected improvement in the key end markets. Moody's anticipates that steady revenue growth for both the Cranes and Food Service segments will lead to improved profitability and cash flow and the company will use its improved cash flows to pay down debt.
Furthermore, Moody's estimates year-end leverage of about 4.5x for 2013 and coverage of over 2x with improvement in 2014. Moody’s feels the company has made significant progress in diversifying its geographic base by increasing exposure to Western Europe and high growth regions. Manitowoc currently generates more than 50% of its sales from outside the U.S.
However, Moody’s remains cautious about Manitowoc’s high leverage for the rating category. Moody's also stated that the ratings could be downgraded if the earnings before interest, taxes, depreciation and amortization (EBITDA) or interest coverage decreased to less than 2x or debt to EBITDA increased to over 5.5x over the next few quarters.
Manitowoc, belonging to the machinery and construction industry alongwith Joy Global, Inc. , reported third-quarter 2013 adjusted earnings from continuing operations of 39 cents per share, up a sharp 129% year over year. Earnings were helped by sound performance in the Crane segment, successful introduction of products, as well as Manitowoc’s strategic initiatives. The results beat the Zacks Consensus Estimate of 32 cents.
For full-year 2013, Manitowoc lowered its revenue guidance for the Crane segment from high single-digit to mid single-digit growth. However, crane demand is expected to increase significantly, aided by the new highway bill and a turnaround in the construction sector. The segment will also benefit from innovation of products and services.
Foodservice revenues are expected to rise in modest single digits compared with the mid single-digit gain expected earlier. The Foodservice segment will be assisted by new manufacturing facilities and product launches.
Margins for both the Crane and Foodservice segments are expected to expand in fiscal 2013. However, high debt levels will continue to be a headwind.
Wisconsin-based Manitowoc is one of the world's leading innovators and manufacturers of commercial foodservice equipment. The company is among the premier innovators and providers of crawler cranes, tower cranes, and mobile cranes for the heavy construction industry. These are complemented by industry-leading product support services.
Manitowoc currently carries a Zacks Rank #3 (Hold). H&E Equipment Services Inc. (HEES - Free Report) also belongs to the same industry and holds a Zacks Rank #2 (Buy).