Blount Int'l (BLT) Assigned 'B+' Rating by S&P; Outlook Negative

Standard & Poor's Ratings Services said that it has assigned its 'B+' corporate credit rating to Blount International Inc. (NYSE: BLT). The outlook is negative.

At the same time, we assigned our 'B+' issue-level rating and '3' recovery rating to Blount International's proposed $550 million senior secured credit facilities, which comprise a $75 million revolver due 2021 (that will be undrawn at closing), a $300 million term loan due 2023, and a $175 million equivalent euro-denominated term loan due 2023. The '3' recovery rating indicates our expectation of meaningful recovery (50%-70%; lower half of the range) in the event of a payment default.

Additionally, we lowered our corporate credit rating on Blount International Inc.'s wholly owned subsidiary Blount Inc. to 'B+' from 'BB-' and removed all of our ratings on the company and its co-borrower Omark Properties Inc. from CreditWatch, where we placed them with negative implications on Dec. 11, 2015. The outlook is negative

We also lowered our issue-level ratings on Blount Inc. and co-borrower Omark Properties Inc.'s $600 million senior secured credit facilities to 'B+' from 'BB-'. The '3' recovery rating is unchanged, indicating our expectation for meaningful (50%-70%; upper half of the range) recovery in the event of a payment default. We intend to withdraw our ratings on the facilities when they are repaid.

"The downgrade of Blount Inc. reflects our expectation that the company's debt-to-EBITDA leverage metric will increase to nearly 5x in 2016 primarily because of the proposed acquisition," said Standard & Poor's credit analyst Jaissy Lorenzo. "The negative outlook reflects the challenging operating environment that the company is facing due to weakness in its agriculture-related end markets and headwinds from the stronger U.S. dollar." However, we expect that the company's covenant headroom will exceed 15% over the next 12-18 months. In line with the company's new private-equity ownership and aggressive financial policies, we have also revised our financial policy modifier on the company's to FS-5. The FS-5 assessment supports our expectation that the company's financial policies will allow it to maintain an adjusted debt-to-EBITDA metric of less than 5x on a consistent basis.

The negative outlook on Blount reflects that there is a one-in-three possibility that we could downgrade the company over the next 12 months. The company is facing weak conditions in its agriculture end markets and headwinds from the stronger dollar, which could pressure its operating performance and cause its debt-to-EBITDA leverage metric to increase above 5x over the next 12-18 months.

We could lower our ratings on Blount if its adjusted debt-to-EBITDA metric increases to more than 5x, pressuring the company's covenant headroom and leaving it with limited prospects for improvement. In this hypothetical scenario, a revenue decline of 2% or greater in 2016 and a 100 basis point deterioration in the company's EBITDA margins, combined with a lack of substantial debt reduction, could increase Blount's leverage to more than 5x and lead to a downgrade. We could also lower our ratings if we believe that the company's financial policy has become more aggressive than originally anticipated, causing its adjusted debt-to-EBITDA metric to increase above 5x.

We could revise our outlook on Blount to stable if foreign-exchange headwinds and the company's end markets stabilize such that we expect it to reduce its leverage to materially less than 5x on a sustained basis.

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