First Atlantic-backed Sprint Industrial hit by oil equipment slowdown

Sprint Industrial Holdings, backed by First Atlantic Capital, may breach financial covenants for its $243 million in debt as early as January 1, according to Moody’s Investors Service. The rental provider of liquid and storage tanks faces a slowdown in the oil and gas business tied to lower energy prices.

The Houston-based company has been operating at an adjusted debt-to-EBITDA multiple of 8x for the 12 months ended September 30, the rating agency said in a December 10 downgrade.

“Moody’s does not expect any meaningful improvement in credit metrics until oil prices recover and increased demand strengthens equipment utilization rates,” Moody’s said in a research note on the company.

Moody’s cut Sprint Industrial’s corporate family rating to Caa2 from Caa1. The rating is assigned to debt judged to be “of poor standing and subject to very high credit risk,” according to Moody’s definitions.

“Reduced demand due to sustained softness in energy markets has contributed to operating losses,” Moody’s said. The company faces “minimal cash balances, expectations for weak near-term free cash flow generation, and a fully-drawn revolving credit facility,” analyst Manish Desai said.

Sprint Industrial also has a low likelihood of maintaining compliance with its financial covenants as thresholds step down at the end of 2015, he said.

The company remains listed as a portfolio company of First Atlantic, a New York firm that drew in $200 million for Atlantic Equity Partners IV in 2006, according to Bison. Earlier this year, First Atlantic raised an additional $160 million to support the Fund IV portfolio, Buyouts reported. As part of the capital raise, some existing LPs in Fund IV sold out of their interests.

Additional capital was raised from new and existing investors to “support the growth and add-on acquisition needs of the existing portfolio companies,” Roberto Buaron, chairman and chief executive officer of First Atlantic, told Buyouts in an email earlier this year.

The firm did not respond to emails requesting comment about Sprint Industrial.

On the plus side for Sprint Industrial, the company’s safety equipment business accounts for about one-third of total revenue. While margins in the unit remain lower than its rental business, the safety business offsets revenue declines related to depressed energy prices.

Sprint’s Safety unit offers a range of services including breathing air, training services, and rental and sales of equipment, according to the company’s website.

Sprint Industrial’s debt includes a $12.5 million senior secured revolving credit facility, $160 million in senior secured first-lien terms loan due in 2019, and a $70 million senior secured term loan due in 2019.

Action Item: See Moody’s rating action for Sprint Industrial here: http://bit.ly/1P8sy57

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