September 18, 2014 / 2:52 PM / 3 years ago

Fitch Rates Anixter's $400MM Senior Notes 'BB+'

(The following statement was released by the rating agency) CHICAGO, September 18 (Fitch) Fitch rates Anixter Inc.'s (Anixter) $400 million seven-year senior unsecured notes issuance 'BB+'. Fitch currently rates Anixter, a wholly-owned subsidiary of Anixter International, Inc. (Anixter International) at 'BB+' with a Stable Rating Outlook. A full list of current ratings follows at the end of this release. Anixter announced today it will issue $400 million of senior unsecured notes maturing 2021. The notes will be fully and unconditionally guaranteed by Anixter International. Anixter intends to use the net proceeds to repay debt under its revolving credit faculty and accounts receivable securitization program. On Sept. 17, 2014, Anixter completed the $420 million acquisition of Tri-Ed, an independent distributor of security and low-voltage technology products. Anixter funded the purchase price with $220 million of borrowings under the existing revolving credit facility (RCF) and a $200 million senior unsecured term loan. Tri-Ed will complement Anixter's security-business positions, specifically in video, access control, intrusion detection and fire/life safety markets. For the trailing 12 months ended June 30, 2014, Tri-Ed reported sales of $570 million and operating EBITDA margin of 6.3%, roughly equivalent to Anixter's margin. Pro forma for the acquisition and use of debt proceeds to repay existing debt, Fitch estimates total leverage (total debt-to-operating EBITDA) will be approximately 2.8x. Fitch continues to expect total leverage of 2x-3x over the longer-term. KEY RATING DRIVERS The ratings and Outlook reflect Fitch's expectations for low- to mid-single-digit organic revenue growth in 2014 as Anixter benefits from modest macroeconomic improvements and new project wins across its three business segments. Fitch expects EBITDA margin to largely hold steady above 6%, absent any significant swings in the U.S. dollar and copper prices. In a stress scenario, Fitch expects EBITDA margin would decline to levels near the trough of the last downturn, or around 5%. Fitch believes working capital cash inflows in a downturn would roughly offset lower EBITDA levels, resulting in free cash flow (FCF) in excess of $200 million. In a flat revenue environment, Fitch estimates Anixter will generate more than $200 million of annual FCF. Fitch expects that Anixter will continue to utilize excess cash and FCF for potential acquisitions and shareholder-friendly actions. Share repurchases and special dividends in excess of FCF in the face of mounting macroeconomic concerns could pressure Anixter's rating, particularly if such action is likely to result in higher leverage upon the resumption of revenue growth. Anixter's ratings and Outlook are supported by the following: --Leading market position in niche distribution markets, which Fitch believes contributes to Anixter's above-average industry margins; --Broad diversification of products, suppliers, customers and geographies which adds stability to the company's financial profile by reducing operating volatility; --Working capital efficiency which allows the company to generate FCF in a downturn. Credit concerns include: --Historical use of debt and FCF for acquisitions and shareholder-friendly actions; --Thin operating margin characteristic of the technology distribution industry, albeit slightly expanded given the company's niche market position; --Significant unhedged exposure to copper prices and currency prices; --Exposure to the cyclicality of IT demand and general global economic conditions. RATINGS SENSITIVITIES Future developments that may, individually or collectively, lead to negative rating action include: --Revenue declines that signal a loss of market share, either to other distributors or suppliers increasingly going direct to market; --Sustained negative FCF from significant special dividends or severe operating margin compression, likely resulting in structurally higher debt levels. Fitch believes positive rating actions are limited by Anixter's history of shareholder-friendly actions. Pro forma for the use of proceeds from the $400 million senior note issuance and acquisition, Fitch believes Anixter's liquidity was adequate and consisted of the following as of July 4, 2014: --$121 million of cash and cash equivalents; --$400 million available under an undrawn RCF expiring 2018; --$100 million available under a $300 million on-balance-sheet accounts receivable securitization program expiring May 2017. Pro forma for the senior notes and use of proceeds to repay revolver and A/R securitization facility debt, total debt is $1.25 billion and consists primarily of the following: --$100 million outstanding under the accounts receivable securitization program; --$200 million of unsecured term loan A; --$200 million of 5.95% senior unsecured notes due February 2015; --$350 million of 5.625% senior unsecured notes due May 2019; --$400 million of senior unsecured notes due 2021; and --$4 million of other debt. Fitch currently rates Anixter International and Anixter as follows: Anixter International, Inc. --Issuer Default Rating (IDR) 'BB+'. Anixter Inc. --IDR 'BB+'; --Senior unsecured notes 'BB+'; --Senior unsecured term loan 'BB+'; --Senior unsecured bank credit facility 'BB+'. Contact: Primary Analyst Jason Pompeii Senior Director +1-312-368-3210 Fitch Ratings, Inc. 70 West Madison St. Chicago, IL 60602 Secondary Analyst John M. Witt, CFA Senior Director +1-212-908-0673 Committee Chairperson Sean Sexton Managing Director +1-312-368-3130 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available at ''. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (May 4, 2014). Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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