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Investing.com -- Moody’s (NYSE:MCO) Ratings has placed the ratings of Columbus McKinnon (NASDAQ:CMCO) Corporation under review for potential downgrade. The ratings under review include the Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating, and the Ba2 senior secured first lien bank credit facility ratings. The outlook for Columbus McKinnon, previously stable, has now been changed to ’rating under review’. The Speculative Grade Liquidity Rating of SGL-1, however, remains unchanged.
The review follows Columbus McKinnon’s pending acquisition of Kito Crosby, currently owned by KKR’s Crosby US Acquisition Corp. The all-cash transaction is valued at $2.7 billion. The proposed financing for this transaction includes around $1.3 billion of new senior secured term loan debt, $1.2 billion of new senior secured notes, and $800 million of perpetual convertible preferred equity provided by private equity firm CD&R. As part of the deal, Columbus McKinnon will replace its existing $175 million revolver with a new $500 million senior secured revolving credit facility. The acquisition is expected to double Columbus McKinnon’s annual revenue and provide opportunities for margin enhancement related to business mix and cost synergies.
The review for downgrade will focus on recent softness in part of Columbus McKinnon’s business, the high financial leverage at transaction close, the path of deleveraging, and the integration risk associated with this transformational acquisition. Moody’s will also evaluate the scale and business profile of the combined entity, opportunities for margin expansion, and financial policy considerations.
The Ba3 CFR, excluding the ongoing review for downgrade, is supported by Columbus McKinnon’s favorable market position and strong brands in the material handling and motion control end markets. The company’s diverse product portfolio and strong backlog support low single-digit revenue growth with a mid-teens EBITA margin. However, the rating is constrained by the company’s sizable debt balance due to recent acquisitions, which led to a somewhat higher debt-to-EBITDA of 4.4 times as of September 30, 2024.
Prior to the ongoing review for downgrade, factors that could lead to a downgrade of Columbus McKinnon’s ratings included a significant increase in acquisitions that would present substantial integration challenges or a significant increase in debt. A downgrade could also be prompted if the company adopts an increasingly aggressive financial policy.
Conversely, factors that could lead to an upgrade of Columbus McKinnon’s ratings included expansion of its EBITA margin into the high teens while achieving organic revenue growth. The ability to continue integrating modestly-sized acquisitions while using a significant portion of free cash flow to repay debt, resulting in debt-to-EBITDA sustained below 3.5x would also support higher ratings.
Columbus McKinnon Corporation, based in Charlotte, NC, is a publicly traded diversified industrial manufacturer with operations in Lifting, Linear Motion, Automation, and Precision Conveyance platforms. The company reported revenue of $1.0 billion for the twelve months ended December 31, 2024.
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