Moody’s rates Filtration loans B2

Moody's Investors Service said it confirmed Filtration Group Corp.’s B2 corporate family rating, B2-PD probability of default rating and the B2 senior secured first-lien term loan rating.

The actions conclude the review for downgrade that was initiated on Aug. 29 following Filtration Group's announcements to acquire the industrial filtration business of Mahle GmbH and the Porous Technologies business of Essentra plc for a combined $345 million.

In related actions, the agency assigned B2 senior secured first-lien ratings to Filtration Group's proposed, upsized revolving credit facility and delayed-draw term loan.

Moody's expects to withdraw the B2 rating on the existing senior secured first-lien revolving credit facility and the Caa1 rating on the senior secured second-lien term loan upon closing of the transaction.

The outlook is negative.

The acquisitions of Mahle and Porous Technologies within such a short timeframe are relatively ambitious as they represent a nearly 40% increase in revenues and a 33% increase in debt, the agency said.

Nonetheless, Moody's expects Filtration Group's robust free cash flow profile, driven by an 80%+ recurring revenue stream, to enable the company to return credit metrics, namely debt-to-EBITDA, back to a level commensurate with the pre-acquisitions level within 12 to 18 months.

The ability to restore metrics within this timeframe will necessitate restraint by Filtration Group on larger acquisitions until financial flexibility is solidly restored.

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