Moody’s rates Tolt loans B2, Caa2

Moody's Investors Service said it assigned a B3 corporate family rating and B3-PD probability of default rating to Tolt Intermediate Holdings, LLC, a newly formed entity set up to combine Tolt Solutions, Inc. and Pomeroy IT Solutions, Inc.

The combined entity will be one of the largest middle market providers of technology infrastructure solutions and managed services in North America. It will be owned by private equity firm Clearlake Capital Group, LP.

Moody's also assigned B2 ratings to the company's senior secured first-lien revolver and term loan and a Caa2 rating to its senior secured second-lien term loan.

The outlook is stable.

Proceeds from roughly $355 million of first- and second-lien term loans plus contributed cash equity will be used to (a) pay off existing Tolt debt; (b) purchase Pomeroy; and (c) provide cash to the balance sheet of the combined entity.

Moody’s said the B3 rating is driven by Tolt's high leverage and substantial integration risk, offset to some degree by (a) the combined company's increased scale; (b) historically high renewal rates; (c) strong recurring revenues; and (d) a leading position as a provider of technology infrastructure and managed services to mid to large market businesses.

Moody's adjusted leverage based on LTM June 30, 2015 results is 6.2 times including adjustments for certain one-time expenses and synergies, and roughly 9 times based on unadjusted results, pro forma for the new debt issuance. Leverage is expected to fall to around 5.7 times on a run-rate basis over the next 12 to 18 months, depending on the pace at which the company can achieve anticipated cost synergies.

The integration of the two businesses is not without risk, however, and relies upon delivering various synergies and cost savings to fully grow revenues and deleverage as projected, the agency said.

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