Moody's upgrades Capstone loans

Moody's Investors Service said it upgraded Capstone Logistics Acquisition, Inc.’s first-lien senior secured revolving credit facility and term loan ratings to B1 (LGD2) from B2 (LGD3) and affirmed its B3 corporate family rating, B3-PD probability of default rating and Caa2 (LGD5) second-lien senior secured term loan rating. The outlook is stable.

Capstone plans to fund the acquisition of Pinnacle Workforce Logistics, LLC with the upsizing of its existing senior secured first-lien credit facility to $360 million from $217.5 million and senior secured second-lien credit facility to $102.5 million from $65 million, along with an equity infusion from its financial sponsor Jordan Co. LP and cash from the balance sheet.

The agency said the additional second-lien debt provides greater cushion for the first-lien instruments, resulting in their higher ratings.

The B3 corporate family rating considers Capstone's small size, elevated financial leverage and anticipation of limited strengthening of credit metrics in the next 12 to 18 months as a result of Capstone's acquisitive growth, the agency said.

At the same time, the company's business model requires little fixed assets, which provides favorable profit margins and free cash flow to debt relative to those reported by larger rated logistics companies, and the benefits of increasing scale, proprietary information systems and employee management make the company's outsourcing services compelling, Moody’s said.

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