Moody's rates ESCO note B2

Moody's Investors Service said it assigned B1 corporate family and probability-of-default ratings and an SGL-2 speculative grade liquidity rating to ESCO Corp. and a B2 rating with a loss-given-default assessment of LGD4 (66%) to its proposed $275 million seven-year senior unsecured notes.

The outlook is stable.

Proceeds from the notes will help fund a partial sale of the company via a leveraged employee stock ownership plan transaction.

The ratings are largely based on ESCO's global number-one market position in the mining and hard rock dredging industries where the company is a leading supplier of ground-engaging consumable wear parts, on Moody's expectation that strong fundamentals for the mining industry will continue in the medium term, thereby supporting demand for ESCO's products, and on the agency's view that the company's credit metrics are consistent with those of B1 rated steel and manufacturing companies, considering ESCO's additional debt from the leverage buyout transaction. At the close of the transaction, ESCO will have $300 million of total debt.

The greatest restraints on the rating are the company's modest size, limited free cash flow for debt repayment, dependence on a highly cyclical industry and the narrow focus of its products, Moody's said. Pro forma total debt to EBITDA is projected to be 4.1x.

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