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Rating Action: Moody's assigns B3 rating to FloWorks International's term loan; outlook stableGlobal Credit Research - 01 Feb 2022New York, February 01, 2022 -- Moody's Investors Service ("Moody's") assigned ratings to FloWorks International LLC (NEW) (FloWorks) including: a B3 to the new $270 million first lien term loan, a B3 Corporate Family Rating (CFR) and a B3-PD Probability of Default Rating (PDR). The rating outlook is stable.Proceeds from the term loan were primarily being used to fund FloWorks' acquisition of SemiTorr Group (SemiTorr), to refinance existing indebtedness, and to pay the related fees and expenses. Pro forma for the SemiTorr acquisition, FloWorks had about 5x leverage. The company's moderately high pro forma leverage and its private equity ownership are key governance considerations incorporated into FloWorks ratings.Assignments:..Issuer: FloWorks International LLC (NEW).... Corporate Family Rating, Assigned B3.... Probability of Default Rating, Assigned B3-PD.... Gtd. Senior Secured 1st Lien Term Loan, Assigned B3 (LGD4)Outlook Actions:..Issuer: FloWorks International LLC (NEW)....Outlook, Assigned StableRATINGS RATIONALEFloWorks' B3 CFR reflects the company's modest revenue and asset base, its exposure to the chemical and more cyclical refining sectors that account for about two-third of its end-market exposures, and moderately high financial leverage following the acquisition. As a diversified distributor, FloWorks can experience some margin variability driven by end-market dynamics as their customer base evolves or as product sales volumes and / or supply chain dynamics persist. The B3 CFR is supported by the company's counter cyclical working capital cycle, its customer and supplier diversification, and its established strategic footprint in geographies within North America with high concentrations of industrial capacity. Moreover, the company has long established customer and supplier relationships and has considerable revenue exposure to MRO (maintenance, repair and overhaul) activity that should help to provide a degree of stability to its revenue through cycles.From a corporate governance perspective, event risk is high with private equity ownership and the propensity of distribution companies to grow through acquisitions. The leverage profile is partly the result of the debt funded acquisition of SemiTorr, which also present integration risks. Additional acquisitions are likely and could weaken the metrics or liquidity.The new $270 million senior secured term loan facility maturing December 2028 is rated B3. Although the $60 million ABL revolver (unrated and maturing December 2026) has a priority claim to certain collateral such as inventory and accounts receivable, the term loan is rated the same as the CFR given the small size of the revolver relative to the term loan. The lack of notching relative to the CFR also reflects the fact that the debt under the new credit facilities comprises all of the company's third party debt and almost all of its liabilities.Moody's assesses FloWorks' liquidity as adequate to cover near term operating and debt service requirements. The company has modest cash balances at close of the term loan transaction. But with moderate free cash flow projected, FloWorks will likely have full access to its $60 million revolving credit facility as little or no drawings are expected at least through 2023. This revolver has a fixed charge coverage covenant requirement of 1x. Moody's expects the company to be able to comfortably comply with the covenant requirement. There is an excess cash flow sweep mechanism under the term loan that requires repayment of debt with a portion of excess cash flow as long as the consolidated net leverage ratio is above 4.25x. The company has no other material indebtedness.The stable outlook reflects Moody's expectations that credit metrics will continue to strengthen, building on the revenue and earnings momentum from a rebound in demand, aided by cost and efficiency measures.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade could be considered if the company's scale grows materially, the recent SemiTorr acquisition is successfully integrated, leverage falls under 4x, and RCF/Net debt remains above 20%. The ratings could be downgraded with deteriorating liquidity, including diminishing revolver availability or lower than expected free cash flow, or if EBITA/interest is expected to remain below 2x. Debt funded acquisitions or dividends that weaken credit metrics or liquidity could also result in downward ratings pressure.FloWorks International LLC, headquartered in Houston, TX, wholly owned by S-I Intermediate Holdings, Inc., is a specialty distribution company in the flow control category. Since 2017, FloWorks is a portfolio company of Clearlake Capital Group, L.P., a private equity sponsor.The principal methodology used in these ratings was Distribution & Supply Chain Services Industry published in June 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121974. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Arvinder Saluja, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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