Rating Action: Moody’s assigns B3 CFR to East West Manufacturing; outlook stableGlobal Credit Research – 14 Jan 2022New York, January 14, 2022 — Moody’s Investors Service (“Moody’s”) assigned first time ratings to East West Manufacturing LLC (“EWM”), including a B3 corporate family rating (CFR) and a B3-PD probability of default rating. Concurrently, Moody’s assigned a B3 rating to the company’s proposed seven year $275 million senior secured term loan, five year $40 million revolving credit facility and $40 million delayed draw term loan. The outlook is stable.Proceeds from the term loans, along with new equity from MSD Partners, and rollover equity from management will primarily be used to fund the acquisition of East West Manufacturing, LLC. The delayed draw term loan will be available for two years and will primarily be used to fund acquisitions.Assignments:..Issuer: East West Manufacturing LLC…. Corporate Family Rating, Assigned B3…. Probability of Default Rating, Assigned B3-PD….Senior Secured 1st Lien Term Loan, Assigned B3 (LGD3)….Senior Secured 1st Lien Delayed Draw Term Loan, Assigned B3 (LGD3)….Senior Secured Revolving Credit Facility, Assigned B3 (LGD3)Outlook Actions:..Issuer: East West Manufacturing LLC….Outlook, Assigned StableRATINGS RATIONALEEast West Manufacturing’s B3 CFR reflects the company’s modest size and scale within the fragmented and competitive outsourced design and manufacturing sector. With two sizable acquisitions made in 2020 and 2021, the rating is also constrained by risks associated with the company’s rapid and recent growth. As a result, there is a limited track record of operations and free cash flow at current scale. Moody’s projects leverage will remain high, given private equity ownership and the likelihood that the company will continue to be acquisitive. Pro forma for the acquisition, Moody’s expects pro forma debt/EBITDA of about 6.0x for the twelve months ended December 31, 2021. The rating is also constrained by meaningful concentration within the top two customers (about a third of total revenue in fiscal 2021) and the potential for variability in demand for customer orders. Industry-wide headwinds, including supply chain challenges and wage inflation, particularly as EWM recruits and retains in-demand engineering talent, are also risks to performance.The rating is supported by the company’s deep and enduring relationships with customers that rely on EWM’s engineering and design expertise as well as its global manufacturing footprint. Moody’s believes that customer relationships are sticky with high switching costs. EWM also has good diversity by industry with customers largely in growing markets such as health and wellness, automation, internet of things (IoT) and industrial technologies. Further, Moody’s expects positive free cash flow to be supported by relatively low capital expenditure requirements, with routine capex of under 2% of revenue.Moody’s expects adequate liquidity supported by positive free cash flow and an undrawn revolving credit facility of $40 million.The stable outlook reflects Moody’s expectation that EWM will pursue acquisitions that will continue to expand scale and diversity while not materially increasing leverage from current levels.The senior secured credit agreement provides for certain incremental debt capacity, including the ability to incur incremental debt in an unlimited amount subject to leverage based incurrence tests for pari passu, junior and unsecured indebtedness. The revolving credit facility is expected to have a springing first lien net leverage test of 8.50x, springing only when more than the greater of (x) $14.0 million and (y) 35% of then outstanding revolving commitment is drawn under the revolving credit facility at quarter end. Expected terms allow the release of guarantees when any subsidiary ceases to be wholly owned and asset transfers to unrestricted subsidiaries, in each case subject to certain exceptions , limitations and carve-outs.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if EWM expands its revenue base and increases customer diversity either through new organic business wins or acquisitions, while maintaining profitability. In addition, adjusted debt-to-EBITDA sustained below 5.5x and free cash flow-to-debt maintained in the mid-single digits range could lead to an upgrade.Ratings could be downgraded should there be a sustained decline in earnings due to competitive factors or loss of key customers. Weakening of liquidity or an increasingly aggressive financial policy, including debt-financed dividends or sizeable acquisitions could also result in a downgrade.East West Manufacturing LLC is an outsourced product design and manufacturing company that assists customers in designing and manufacturing products as well as logistical support. Projected revenue for fiscal 2021 is expected to be about $450 million.The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287885. 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. 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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. Safat Hannan Asst Vice President – Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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