(The following statement was released by the rating agency)
July 25 -
Summary analysis -- Butler Animal Health Supply LLC --------------- 25-Jul-2012
CREDIT RATING: BB/Stable/-- Country: United States
Primary SIC: Animal
Mult. CUSIP6: 12336M
Credit Rating History:
Local currency Foreign currency
17-Jan-2012 BB/-- BB/--
04-Jan-2010 BB-/-- BB-/--
The rating on Dublin, Ohio-based Butler Animal Health Supply LLC reflects the company's "significant" financial risk profile, according to Standard & Poor's Ratings Services' criteria. This financial risk profile takes into account our expectation that, over the near term, leverage will decline to less than 4x, funds from operations (FFO) to total debt will be grow to at least 20%, and the cushion underneath its leverage covenant will be about 15%. We characterize Butler's business risk profile as "weak," reflecting this business' particular susceptibility to economic weakness: Spending for companion animals can be discretionary during economic contractions.
Butler's first-quarter revenue grew 17.5% over prior year, on strong demand for its products and an extra selling week in 2012. This contributed to first-quarter EBITDA margins of almost 10%, about 100 basis points higher than the prior year. These results are tracking ahead of our expectation that, over the near term, Butler will generate mid-single-digit revenue growth with only flat to slightly higher high-single-digit margins. Although the weaker economy appears to have stabilized, the uncertain pace of economic recovery could constrain Butler's ability to raise prices, so we are not revising our 2012 base case. On a standalone basis, Butler has a significant financial risk profile. This incorporates our expectation that, over the near term, adjusted leverage will decline to about 3.5x, following a more than 1x reduction in 2011, and that FFO to total debt will improve to 20% or more. At March 31, 2012, leverage was 3.2x and FFO to total debt was about 27%. Both metrics were ahead of our expectations because of expanding EBITDA and lower funded debt. The lower leverage will help Butler sustain recent improvements to its covenant cushion, and maintain adequate covenant cushions of about 15%, despite aggressive step-downs through Dec. 31, 2012.