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Garda CEO Stephan Cretier

Christinne Muschi/The Globe and Mail

Moody's Investors Service has placed Garda World Security's $750-million of debt under review for possible downgrade following a proposal to take the company private.

The Montreal-based company announced a $1.1-billion transaction Friday with a subsidiary of private equity firm Apax Partner to take the cash logistics and security firm private.

Under review are Garda's B1 corporate family rating, B1 probability of default rating, B2 senior unsecured notes ratings, and the Ba1 senior secured bank facilities ratings of Garda's subsidiary, Garda Security Group Inc.

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The company's speculative grade liquidity rating was affirmed at SGL-3.

Moody's said its review will focus on potential changes to Garda's capital structure, its appetite for acquisitions as a private company, and the impact the transaction will have on its liquidity.

"Garda's ratings could be downgraded if Moody's determines that Garda's initial leverage would increase materially or if a shift in the company's acquisition strategy were to hinder its ability to deleverage," it said in a new release.

The ratings agency said it would require the company to provide "sufficient financial information" in order for the ratings to be maintained, even if the transaction closes following a shareholder vote in October.

Meanwhile, Martin Landry of GMP Securities called the transaction "opportunistic" given Garda's accelerating growth.

"While investors were still discounting Garda's valuation due to its high leverage, the company's operations definitely had some momentum," he wrote in a report.

The company reported the highest EBITDA earnings growth in four years and stronger organic revenue growth in more than five years.

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Without the takeout offer, Mr. Landry said he would have expected Garda's share price to have performed well and profits to continue growing by at least double digits.

Mr. Landry increased his target price by 50 cents to match the $12 offer price.

Chief executive officer Stephan Cretier said Friday that small-cap companies with lots of debt such as Garda have not been favoured by public investors. The company wants to continue growing through acquisitions.

Mr. Landry changed his rating to tender, saying the consortium's offer represents full value given the low likelihood of competing bids.

"However we are doing this in a reluctant way knowing that the outlook for Garda seems brighter than ever."

Garda provides cash logistics, including armoured cars in Canada and the United States, pre-screening at 28 Canadian airports, and physical security around the world.

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