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March 7, 2008 |
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CROWN WORLDWIDE: Moody's Puts Ba2 Ratings on Proposed Notes Moody's Investors Service, on March 6, assigned a provisional (P)Ba2 corporate family rating to Crown Worldwide Holdings Ltd and a provisional (P)Ba2 rating to the company's proposed US$125 million to US$150 million 5-year senior notes. The outlook on both ratings is stable. The bond proceeds will be used to refinance a US$85m bridge loan due March 24, with the remainder to be used for capital expenditure. This is the first time that Moody's has assigned ratings to Crown, and the rating agency expects to affirm the ratings and remove them from their provisional status upon successful completion of the bond issuance. Failure to do so or arrange appropriate long term funding will result in a lower rating in view of the high refinancing risk faced by Crown. "The (P)Ba2 ratings recognise Crown's strong brand recognition in Asia and, to a lesser extent, the UK, its diversified and strong customer base, and its long operating track record. The stability and profitability of its document storage business provide further support to the ratings," says Elizabeth Allen, Moody's lead analyst for Crown. "While the company's core businesses are very cash generative, Crown's strategy to strengthen its portfolio of self-owned facilities is likely to result in fairly high capital spending in the coming two years, " adds Allen. "As a result, free cash flow could turn negative and any improvement in credit ratios would then have to come from improvement in profit generation." Furthermore, as part of Crown's expansion strategy, small to medium-sized acquisitions in selected businesses and locations are also likely. Crown reported adjusted debt/EBITDA of 4.5x and adjusted EBITDA interest coverage of 3.9x for FY2007. Moody's expects these ratios to stay at similar levels in the next two years. While such a financial profile is slightly on the weak side, the ratings are supported by the company's relatively stable business profile, low execution risk associated with its growth strategy, and competitive position in its core markets. The rating further incorporates the privately owned nature of Crown and its parent group (Crown & Grace Group), the existence of closely-related businesses owned by the parent, and intra- group transactions. Such a group structure also limits transparency and corporate governance, and disclosure standards are generally inferior to listed companies. However, Moody's draws comfort from Crown's long operating track record, the absence of dividend payment in the last few years and good reputation in the market. A rating upgrade will be considered if the company: 1) adheres to strong financial discipline as it continues to expand; 2) improves transparency and corporate governance; and/or 3) strengthens its financial profile such that adjusted debt/EBITDA falls below 3-3.5x and/or adjusted EBITDA interest coverage exceeds 4.5-5x on a sustainable basis. On the other hand, downward rating pressure could emerge if: 1) there is evidence of material diversion of funds to related group companies; 2) the company adopts an aggressive acquisition strategy; and/or 3) there is a material deterioration in its financial profile including adjusted debt/EBITDA exceeding 4.5-5x and adjusted EBITDA interest coverage falling below 2.5-3x. Headquartered in Hong Kong, Crown offers relocation and mobility services (R&M) as well as record storage and management services to multinational organizations and private individuals. It also offers value-added logistics services in a number of areas. Crown was founded by Mr James Thompson, Group Chairman and CEO, and is ultimately owned by a trust, beneficially owned by him and his family members. The company has a global footprint of more than 200 offices in over 50 countries and is the flagship company of the privately-held Crown & Grace Group. |
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