Moody’s adds LD to Werner rating

Moody’s Investors Service said it added an /LD, or limited default, designation to Werner FinCo LP’s Caa2-PD probability of default rating. It will remove the designation in about three business days.

The limited default designation follows Werner reporting that most holders of the unsecured notes due 2025 agreed to exchange to junior lien notes due 2028, Moody’s said. Werner converted about 95% of its unsecured notes or $250 million to new junior lien notes. This transaction subordinates non-participating lenders to exchanging lenders. The debt exchange and recently issued $400 million secured notes due 2028 address near-term maturities and increase revolver availability.

“However, Moody's believes the risk of default will remain high unless Werner demonstrates a material improvement in operating results. Our forward view assumes the company's leverage will decline from near 10x for the 12 months ending March 31, 2023 to low 9x by calendar year 2023 through margin improvement as pricing initiatives and manufacturing efficiencies offset volume declines,” the agency said in a press release.

If the residential construction stabilizes, it is possible Werner could lower its leverage to near 8x in calendar year 2024, though Moody’s said it estimates free cash flow will be negative $10 million in 2023 and 2024.

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