New York, February 02, 2023 — Moody’s Investors Service (“Moody’s”) assigned first-time ratings to Indicor, LLC (“Indicor”) including a B2 corporate family rating and a B2-PD probability of default rating. In addition, Moody’s assigned a B1 rating to Indicor’s first lien credit facilities, comprising a $300 million revolving credit facility, a $1,230 million first lien term loan and a 300 million first lien term loan. The outlook is stable.
Proceeds from the first lien term loans, along with a $475 million second lien term loan (unrated) and new equity will be used to finance the initial purchase of a 51% stake in Roper Technologies, Inc.’s (“Roper Technologies”) (Baa2, Stable) industrial products businesses by Clayton, Dubilier & Rice (“CD&R”). The original purchase price was about $2.6 billion. Roper Technologies retained a 49% minority stake.
Moody’s took the following actions:
Assignments:
..Issuer: Indicor LLC
…. Corporate Family Rating, Assigned B2
…. Probability of Default Rating, Assigned B2-PD
….Senior Secured First Lien Revolving Credit Facility, Assigned B1 (LGD3)
….Senior Secured First Lien Term Loan, Assigned B1 (LGD3)
Outlook Actions:
..Issuer: Indicor LLC
….Outlook, Assigned Stable
RATINGS RATIONALE
The ratings reflect Indicor’s leading market position as a provider of preparation & testing equipment, sensors & controls and flow control systems to an assortment of end markets globally. With a focus on niche applications for highly critical components, the company has been able to sustain industry leading operating margins through the use of an asset-light business model. Additionally, the company’s global footprint is structured to be close to its customers thus minimizing both supply chain disruptions and significant currency translation. While Indicor has meaningful exposure to infrastructure and oil & gas spending cycles, demand for its products ensure compliance with critical safety and efficiency standards, with revenue from aftermarket services (55%) being quite steady.
However, Indicor will have very high initial leverage. Moody’s estimates pro forma debt to EBITDA at 6.7x at December 31, 2022. Moody’s expects leverage to gradually improve over the next 18 months to below 6.0x, through a combination of debt repayment and improved earnings performance. The rating also reflects Moody’s belief that Roper Technologies’ continued ownership and disciplined approach to its remaining investment will support the plan to reduce leverage.
The ratings also reflect Indicor’s presence in multiple end markets, some of which are cyclical and susceptible to industrial and economic downturns. A further concern is that many of the company’s manufacturer suppliers are experiencing rising costs associated with a tight labor market, rising fuel prices, higher transportation costs and a shortage of materials. So far Indicor has been able to pass along those rising costs, while also capturing a small margin gain. However, there remains a concern that as the general economy slows those margin gains could reverse.
Liquidity is adequate and supported by cash balance of about $75 million and a new $300 million revolving credit facility, with $235 million available at transaction close. It is also supported by Moody’s expectation of free cash flow of around $50 million in 2023. The new revolver has a maximum springing first lien secured leverage ratio of 9.7x, tested when 40% is drawn and tested at quarter-end, which is unlikely to be tested in the near term. Alternate sources of liquidity are limited given that all assets are pledged to the new senior secured facilities and second lien facilities.
The B1 rating on the first lien credit facilities, one notch above the B2 corporate family rating, reflects the priority of first lien claims with respect to the collateral securing the loans and the support provided by the second lien term loan (unrated) in the liability waterfall.
The stable outlook reflects Moody’s expectations that credit metrics will continue to improve, building on the revenue and earnings momentum from a large order backlog and continued strong demand in the end markets Indicor sells into. The outlook also reflects Moody’s expectation that the company will maintain at least adequate liquidity.
Indicor’s Credit Impact Score is high (CIS-4). This primarily reflects the negative credit impact due to high governance risk factors that pressure the rating. The degree of impact over time will primarily depend on the evolving financial policy of the company’s new owners, Indicor’s ability to improve returns to support de-levering the balance sheet while at the same time keeping an adequate liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded with consistent revenue growth, while sustaining current strong margins and Moody’s expectation that debt-to-EBITDA will remain below 5.0x. Maintenance of conservative financial policies that support lower leverage would also be needed to support an upgrade. A stronger liquidity profile would also be expected for higher ratings, including ample revolver availability.
The ratings could be downgraded if the company is unable to de-lever from pro forma levels or has difficulty establishing operations on a standalone basis. Additionally, if liquidity deteriorates, including diminishing revolver availability, or the company prioritizes shareholder friendly distributions, especially if funded with debt, or other aggressive financial policies including meaningful debt financed acquisitions, the ratings could be downgraded.
The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287885. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Indicor LLC, is a collection of businesses carved out from the process technologies and the measurement and analytical solutions business lines of Roper Industries. It comprises 15 distinct brands serving the materials preparation and testing, sensors and controls, and flow control applications globally. Revenue was $1.0 billion for fiscal year ended December 31, 2022.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
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Ron Neysmith
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Dean Diaz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
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