Beacon Roofing Supply, Inc. — Moody’s upgrades Beacon Roofing Supply’s CFR to B1, secured debt to Ba3, unsecured notes to B3; upgrades liquidity rating to SGL-1; outlook positive
Rating Action: Moody’s upgrades Beacon Roofing Supply’s CFR to B1, secured debt to Ba3, unsecured notes to B3; upgrades liquidity rating to SGL-1; outlook positiveGlobal Credit Research – 09 Apr 2021New York, April 09, 2021 — Moody’s Investors Service (Moody’s) upgraded Beacon Roofing Supply’s (Beacon) Corporate Family Rating (CFR) to B1 from B2 and Probability of Default Rating to B1-PD from B2-PD. Moody’s also upgraded the ratings on Beacon’s senior secured debt to Ba3 from B2 and its senior unsecured notes to B3 from Caa1. The outlook is changed to positive from negative. In addition, Moody’s upgraded the company’s speculative grade liquidity rating to SGL-1 from SGL-2.The upgrade of Beacon’s CFR to B1 from B2 and the change in outlook to positive from negative reflects Moody’s expectation that Beacon will benefit from end market dynamics that support growth and will improve operating performance. Additionally, Moody’s believes the company will use proceeds from the sale of its interior business to reduce debt. These factors and a more conservative financial policy, including maintaining adjusted debt-to-LTM EBITDA below 4.0x over the next two years, support these rating actions.Beacon completed the sale of its interior products and insulation businesses (approximately $1.2 billion in revenue) to Foundation Building Materials, Inc. (B2 stable) on February 10, 2021.The upgrade in Beacon’s speculative liquidity rating to SGL-1 from SGL-2 reflects Moody’s expectation that Beacon will generate consistent free cash flow in excess of $300 million in each of the next two fiscal years ending September 30. Significant cash on hand, ample revolver availability and no near-term maturities contribute to Beacon’s very good liquidity.”Beacon’s upgrade and positive outlook are driven by Moody’s expectation that Beacon will follow conservative financial policies,” according to Peter Doyle, a Moody’s VP-Senior analyst. “The likely use of proceeds from an asset sale for debt reduction is the main reason for expected improvement in credit metrics that support higher ratings,”The following ratings are affected by today’s action:Upgrades:..Issuer: Beacon Roofing Supply, Inc….. Corporate Family Rating, Upgraded to B1 from B2…. Probability of Default Rating, Upgraded to B1-PD from B2-PD…. Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2….Senior Secured Term Loan B, Upgraded to Ba3 (LGD3) from B2 (LGD3)….Senior Secured Global Notes, Upgraded to Ba3 (LGD3) from B2 (LGD3)….Gtd. Senior Global Notes, Upgraded to B3 (LGD5) from Caa1 (LGD5)Outlook Actions:..Issuer: Beacon Roofing Supply, Inc…..Outlook, Changed To Positive From NegativeRATINGS RATIONALEBeacon’s B1 CFR reflects Moody’s expectation that the company will benefit from ongoing demand for residential roofing repair, the main driver of Beacon’s revenue. Moody’s projects that Beacon will maintain good credit metrics, including interest coverage, measured as EBITA-to-interest expense, that will approximate 3.6x by September 30, 2022, (fiscal year-end 2022). Moody’s also forecasts good operating performance with adjusted EBITDA (Moody’s calculation) margin sustained in the range of 9.0% – 9.5%. However, Beacon faces strong competition in all of its markets from other roofing distributors and its product mix is reliant on commodity-like products. These factors make it difficult for Beacon to expand margins beyond our projected range and to significantly grow market share.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that could lead to an upgrade:» Debt-to-LTM EBITDA is maintained below 4.5x» Extend maturity of revolving credit facility» All net proceeds from asset sale used for debt reduction» Maintenance of conservative financial policiesFactors that could lead to a downgrade:» Debt-to-LTM EBITDA is sustained above 5.0x» The company’s liquidity deteriorates» Aggressive acquisition or shareholder return activityThe 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.Beacon Roofing Supply, Inc., headquartered in Herndon, Virginia, is one of the largest wholesale distributors of roofing material and other building products in the US. CD&R, through its affiliates, controls about 30% of the company’s total voting rights.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. 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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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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. Peter Doyle 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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