Moody's affirms Mitchell on merger news

Moody's Investors Service said it affirmed Mitchell International, Inc.'s B3 corporate family rating and B3-PD probability of default rating upon news that the company will be merging with Genex Services, Inc.

The merger has the backing of common-owner Stone Point Capital, Moody's said.

The merger deal includes the repayment of nearly $500 million of existing Genex revolver and first- and second-lien term loan debt with the proceeds of an incremental $500 million first-lien term loan at the surviving borrower, Mitchell, Moody's explained.

As a result of the increased proportion of first-lien debt in Mitchell's post-merger capital structure relative to second-lien debt, the agency said it downgraded the first-lien revolver and term loan to B2 from B1, as there is relatively less second-lien debt to provide ratings support to first-lien obligations.

Moody's also said it affirmed the Caa2 rating on Mitchell's second-lien term loan, whose $450 million principal is unchanged.

The merger is expected to close in early November. Moody's said it expects to withdraw the facility and corporate family ratings of Gem Acquisitions, Inc., the indirect parent of Genex.

The outlook is stable.

The merger will give Mitchell substantial $1.1 billion revenue scale, but the combined entity is expected to be a slower growing and lower margin company, Moody's said.

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