Fitch lowers ADT to junk on acquisition news

Fitch Ratings said it downgraded ADT Corp.’s issuer default rating to BB from BBB-.

The agency also said it placed the ratings on Rating Watch negative following news that ADT entered into a definitive agreement to be acquired by an affiliate of certain funds managed by affiliates of Apollo Global Management, LLC.

The agency also downgraded the rating on ADT’s outstanding $3.75 billion of senior notes to BB+ with recovery rating of RR2 from BBB-, along with the rating on its unsecured debt to BB with recovery rating of RR4 from BBB-.

The downgrades reflect an expectation that the company’s credit metrics will be meaningfully weaker following the acquisition, Fitch said.

The company’s debt-to-EBITDA ratio is likely to settle between 5x to 5.5x on a pro forma basis compared with 3x for ADT on a standalone basis for the 12 months that ended Dec. 31, 2015, the agency said.

ADT announced Feb. 16 that it agreed to be acquired by certain Apollo Funds for $42 per share, Fitch said, and the company is expected to be merged with Prime Security Services Borrower LLC.

The combined company will have total revenues of about $4.2 billion and $318 million of recurring monthly revenue with about 30% market share in the North American residential security market, Fitch said.

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