KPS Sets $200M Loan For Waupaca Foundry Dividend: UPDATED

A spokesman for KPS Capital declined comment, saying the transaction has not yet closed.

KPS Capital bought the company last July, paying an undisclosed amount for the ThyssenKrupp Waupaca Inc. unit of ThyssenKrupp Budd Co. and renaming it. ThyssenKrupp AG, the company’s German parent and one of the world’s largest steel producers, had acquired the Budd Co., a Troy, Mich.-based metal fabricator, in 1978.

At the time of its purchase of the iron-casting unit, when KPS Capital gave it the Waupaca Foundry name, the firm said the Waupaca, Wis.-based company employed 3,500 workers at plants in Wisconsin, Indiana and Tennessee. Sister service Thomson Reuters Loan Pricing Corp. reported in November that Waupaca Foundry downsized the $260 million term loan on the deal to $225 million and reduced pricing on the facility to LIB+450 with a 1.25 percent floor from the earlier loan’s LIB+725 with a 1.25 percent floor.

Now, KPS Capital plans to add on $200 million back to the term loan. Moody’s Investors Service affirmed its ‘B1’ corporate family rating on Waupaca Foundry and its ‘B2’ rating on the term loan. In Moody’s system, a ‘B’ rating is considered speculative and subject to high credit risk. “The company’s focus on shareholder returns is a detractor to the ratings,” Moody’s said, but its strong position in the U.S. automotive industry and improving automotive demand justify the rating. With the additional debt, Waupaca’s pro forma debt-to-EBITDA leverage is estimated at about 3.1x, Moody’s said.

Standard & Poor’s Ratings Services also affirmed the ‘B+’ corporate credit rating but lowered its rating on the specific loan to to ‘B+’ from ‘BB.‘ In S&P’s system, a ‘B’ rating represents a debtor that is vulnerable to adverse business, financial and economic conditions but has the capacity to meet financial commitments. The company intends to use the proceeds from the add-on term loan to fund shareholder distributions, said S&P, which estimated leverage to be at about 3.5x. “We consider an upgrade unlikely because we believe the company’s financial policies will remain aggressive under its private-equity owners,” S&P said in announcing its ratings actions.

KPS Capital has $2.5 billion of assets under management. The firm invests in restructurings, turnarounds and other special situations.

The Waupaca Foundry dividend is the second that KPS Capital has swung this year. The firm announced in January that it completed a recapitalization of portfolio company WWRD Holdings Ltd; that deal raised $167.5 million, of which $50 million was to fund a cash distribution to investors. WWRD owns a variety of luxury home and lifestyle products under brands, including Waterford, Wedgwood, Royal Doulton, Royal Albert and Johnson Brothers.

Turnaround firms often go light on leverage when they buy companies, to give them a chance to get on back on their feet. Once they’re generating enough cash sponsors can then use dividend recaps to take out equity while still retaining ownership.

UPDATE: A version of this story posted on Feb. 5 reported the size of the Waupaca Foundry loan at $150 million, and that was the offering that Moody’s and S&P evaluated. The company subsequently upsized the loan by $50 million, to $200 million, and also tightened its pricing, raising the original issue discount to 99.75 percent from 99.5 percent.