26.11.2012 19:10

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Safway Group Holding LLC -- Moody's assigns B2 CFR to Safway Group Holding; rating outlook stable


Approximately $500 million of rated debt securities affected

New York, November 26, 2012 -- Moody's Investors Service assigned first-time corporate family and probability of default ratings of B2 to Safway Group Holding LLC ("Safway"). In a related action, Moody's assigned a B2 rating to the company's proposed senior secured term loan, the proceeds of which will be used to refinance Safway's existing senior secured term loan due 2017, pay down borrowings under its existing revolving credit facility, and improve its cash position. The rating outlook is stable.

The following ratings will be affected by this action:

Corporate Family Rating assigned B2;

Probability of Default Rating assigned B2; and,

Senior Secured Term Loan due 2019 assigned B2 (LGD4, 56%);

RATINGS RATIONALE

Safway's B2 Corporate Family Rating reflects the company's high adjusted debt leverage. As a result of the proposed transaction, we calculate adjusted debt-to-EBITDA increasing to about 5.7 times, on a pro forma basis, from about 4.8 times as of September 30, 2012. According to our projections, debt leverage could improve slightly to approximately 5.5 times over the next 12 to 18 months, primarily as a result of improved profitability as opposed to debt reduction (all ratios incorporate Moody's standard accounting adjustments). We add approximately $330 million of additional debt to the balance sheet to adjust for off-balance sheet obligations, including operating lease commitments and about $180 million for potential US multi-employer pension plan liabilities. Offsetting our concerns about the company's debt burden are expectations for margin expansion as conditions in the refining and power sectors, key drivers of Safway's revenues, improve. Also, we believe that Safway will benefit from its exposure to the commercial construction sector, which is experiencing a modest rebound. Improving operating efficiencies and branch consolidation will aid in better margins as well. Furthermore, Safway's good liquidity profile, supported by an asset-based revolving credit facility with ample availability, is a key credit strength.

The stable rating outlook reflects our view that Safway's credit metrics will improve as it continues to leverage its scale and market position to compete for industrial maintenance and turnaround projects and as the North American construction sector continues to strengthen. The lack of near-term debt maturities until the revolver matures in 2017 will also provide financial flexibility until end markets experience a strong, sustainable recovery.

The B2 rating assigned to the proposed senior secured term loan is the same as the corporate family rating, as it represents the preponderance of debt in Safway's capital structure. The term loan will benefit from a first-priority interest in substantially all of Safway's domestic assets, excluding accounts receivable, and will be guaranteed by the company's future and existing domestic subsidiaries.

The ratings may improve if Safway is able to reduce leverage, either through improved operating profitability or debt reduction using free cash flow. Adjusted debt-to-EBITDA sustained below 5.0 times and improved debt service coverage such that adjusted (EBITDA-Capex)-to-interest expense exceeds 2.0 times could result in positive rating actions.

The ratings may be downgraded if the company fails to meet our expectations for improvement in debt leverage, with adjusted debt-to-EBITDA remaining above 5.5 times. Adjusted (EBITDA-Capex)-to-interest expense below 1.5 times could also pressure the ratings. In addition, if the company pursues large debt-financed acquisitions that do not prove sufficiently accretive relative to incremental debt, negative rating actions may be taken.

The principal methodology used in rating Safway Group Holding LLC was the Global Business and Consumer Services Industry Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Safway Group Holding LLC, headquartered in Waukesha, WI, is a North American provider of work access with a growing presence in specialty services. Safway provides scaffolding, insulation, coatings and other services supporting the refining, chemical and power industries. It also provides scaffolding and other services for the commercial construction end market including the maintenance and renovation of commercial and multi-family buildings. Odyssey Investment Partners ("Odyssey"), through its respective affiliates, owns the company. Revenues for the 12 months through September 30, 2012 totaled about $887 million.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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 ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Peter Doyle Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Brian Oak MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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