Moody's rates Fender Musical loan B2

Moody's Investors Service said it assigned a B1 corporate family rating to Fender Musical Instruments Corp.

Moody's also said it assigned a B2 (LGD 4) rating to the company's proposed $225 million senior secured term loan due in 2025.

The proceeds from the term loan and a $4 million draw on the proposed $85 million asset-backed lending facility will be used to pay a $105 million dividend to existing shareholders, refinance existing debt and pay transaction fees and expenses, the agency said.

The outlook is stable.

The ratings reflect the company's relatively high pro forma financial leverage of 4.7x following a $105 million debt-financed dividend to Fender's existing shareholders, Moody's explained.

The agency said it views the dividend recapitalization as indicative of an aggressive financial policy that creates additional financial risk for a company with highly economically-sensitive and discretionary consumer products.

The ratings also consider the company's lack of significant product diversification outside of musical instruments and relatively small size with annual revenues of about $522 million, Moody's said.

Partially offsetting these risks are Fender's well-known brand names, good liquidity, good geographic diversification throughout the United States and internationally, the agency said.

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