Announcement: Moody's Ratings says that Allied Universal's add-on to secured notes due 2031 does not affect the current ratings

Moody's Ratings

New York, August 01, 2024 -- Moody's Ratings (Moody's) said that Allied Universal Holdco LLC's ("Allied Universal") proposed $500 million add-on to its senior secured notes due 2031 does not change the current ratings. The outlook is stable. Proceeds from the issuance will be used to pay down the remaining $206 million of company's existing 6.625% senior secured notes due July 2026 and approximately $300 million of debt under the $1.6 billion asset-based revolver. The transaction is leverage neutral; Moody's adjusted total debt to EBITDA for the 12-month period ended 31 March 2024 was 8.1x.

RATINGS RATIONALE

The B3 Corporate Family Rating ("CFR") at Atlas Ontario LP ("Atlas Ontario"), Allied Universal's holding company, reflects its highly leveraged capital structure, thin profit margins, aggressive acquisition history and concentrated ownership. The company benefits from its market position as the largest security services company in North America and globally, and the recession resistant nature of the security services business. EBITDA margins of 8.5% to 9% are low relative to other essential business services companies but similar to comparable security services companies. However, security services, which accounts for over 90% of revenues, features very low capital investment requirements, which benefits cash flow profile. As the availability of labor further improves and the company centralizes its international shared services operations, margins should also improve. However, we expect that the debt financed acquisitions will continue, which will limit leverage reduction.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if: 1) revenue continues to grow on an organic and inorganic basis; 2) debt-to-EBITDA is expected to remain below 7.0x; 3) profitability improves and is expected to remain stable; and 4) free cash flow to debt is anticipated to remain above 3.0%.

The ratings could be downgraded if 1) revenue growth rates decline toward break- even whether due to loss in customers or market share; 2) leverage increases from current levels and is expected to be sustained above 9x; 3) margins decline; or 4) liquidity deteriorates.

All financial metrics cited reflect our standard adjustments.

Allied Universal, headquartered in Conshohocken, Pennsylvania and Santa Ana, California and controlled by affiliates of private equity sponsors Warburg Pincus and CDPQ, is one of the world's largest security and related services company. Revenue for FY 2023 was around $20.6 billion.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com for the most updated credit rating action information and rating history.

Farah Zakir

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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Andrea Usai

Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376

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