S&P gives PetIQ, loan B-

S&P said it gave B- ratings to PetIQ Inc. and its planned $300 million first-lien term loan to refinance $260 million of debt and fund its near-term working capital needs. The loan’s recovery rating is 3, indicating an expectation for meaningful recovery (50%-70%; rounded estimate: 65%) in default.

PetIQ also plans to secure an unrated $125 million senior secured asset-based lending revolver to replace its current facility.

“Notwithstanding the company's improving revenue and profit growth trajectory, we estimate its leverage will be high in the mid-7x area pro forma for the transaction. While we expect PetIQ to materially improve its leverage over the next year as its services business recovers and it continues to benefit from favorable demographic trends, we forecast its leverage will remain well above 5x due to management's aggressive growth strategy,” S&P said in a press release.

The outlook is positive, indicating the agency could upgrade PetIQ over the next 12 months if it can improve its leverage to 6.5x while generating free cash flow of about $20 million, S&P said.

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