Moody's: DS loan Ba3, notes B3

Moody's Investors Service said it assigned a B2 corporate family rating and a B2-PD probability of default rating to DS Waters of America, Inc. following the company's leveraged buyout. The agency also assigned a Ba3 (LGD2, 27%) rating to DS Waters' proposed $310 million first-lien term loan due 2020 and a B3 (LGD5, 76%) rating to its proposed $350 million second-lien notes due 2021. The outlook is positive.

The loan proceeds and an equity contribution of about $260 million are expected to be used to fund the leveraged buyout.

The agency said the B2 corporate family rating reflects DS Waters' elevated leverage profile, moderate interest coverage and material exposure to macroeconomic variables, most notably employment rates. The post-leveraged buyout leverage ratio is expected to be about 4.7 times for the 12 months ended June 28.

However, the rating incorporates DS Waters' strong market position in the fragmented home and office delivery market, its portfolio of recognizable regional brands, relatively high barriers to new competition in the space and expectations for positive free cash flow during the next 12 to 18 months, Moody's said.

The positive outlook reflects Moody's expectations that the company's credit metrics will improve as a result of both EBITDA growth and debt repayment over the next 12 to 18 months.

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