Apex Tool downgraded by S&P Global Ratings to CCC on springing maturity concern

Apex Tool Group LLC was downgraded today by S&P Global Ratings to CCC from CCC+, retaining its negative outlook, with the rating agency expressing concern over a springing loan maturity triggered by its $325 million of 9% unsecured bonds due February 2023. The company's first-lien term loan due 2024 (L+550, 1.25% floor) and revolver were also downgraded to CCC from CCC+, while the 9% bond issue was cut to CCC- from CCC.

S&P Global Ratings noted that the company's revolver ($157 million outstanding) and term loan ($825 million outstanding) have a springing maturity date of Nov. 16, 2022. The November maturity date will be triggered if more than $100 million principal amount of the bonds are outstanding on that date or if at least that sum is outstanding and the bonds' maturity has not been pushed to, at the earliest, July 1, 2024.

Ratings notes that "there is no assurance" that Apex will be able to pay down at least $225 million of the notes by the November 2022 trigger date.

This year, the company has been seeing "solid end-market demand," but capital expenditures, fixed charges and inflation are projected to yield break-even free operating cash flow in 2021 and 2022, according to Ratings. The rating agency projects that Apex's leverage will come in at around 8x-9x in 2021, against just under 10x in 2020.

Ratings is also concerned about the lack of a proposed loan refinancing and repayment plan, which "elevate[s] the risk of a liquidity crunch over the next 12 months." Ratings pointed out that liquidity is currently "very tight," with $35 million in balance sheet cash and only $800,000 available on the revolver.

In November, Moody's downgraded Apex to Caa2 and a negative outlook, from Caa1 and a stable outlook, with the agency citing the company's "untenable" capital structure. The company's first-lien facility was also cut, to Caa1 from B3, while the bond issue was affirmed at Caa3.

Sparks, Md.-based Apex Tool Group is a global manufacturer of hand and power tools for industrial, commercial and retail customers. It is owned by Bain Capital Partners LLC.