S&P rates Funding Co. loans B+

Standard & Poor's said it assigned a B corporate credit rating and stable outlook to Funding Co., a special-purpose entity formed to enter into a credit agreement and sale-leaseback arrangement with operating company Varel International Industries LP.

S&P assigned B+ ratings to Funding Co.'s proposed $140 million first-lien senior secured term loan and $20 million first-lien senior secured revolving credit facility.

The ratings reflect Varel's small market position in drill-bit manufacturing, highly leveraged capital structure and cyclical end markets, the agency said.

These weaknesses are partly offset by improving financial performance, a geographically diverse revenue base and low capital-spending requirements, S&P said.

Pro forma leverage will be 5 times EBITDA, according to the agency.

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