Moody's assigns Ba2 rating to Standard Industries' proposed senior unsecured notes

Moody's Investors Service, ("Moody's") assigned a Ba2 rating to Standard Industries Inc.'s ("Standard") proposed senior unsecured notes due 2028. Proceeds from these notes will be used to redeem company's existing 5.125% $500 million senior unsecured notes due 2021, at which time the rating for this debt will be withdrawn. The balance of proceeds, after paying tender/make whole premium, accrued interest, and related fees and expenses, will increase cash on hand for general corporate purposes. We expect the proposed notes to have similar terms and conditions as company's existing Ba2 rated senior unsecured notes, ranking pari-passu to each other in a recovery scenario. Additionally, Moody's affirmed Standard's Ba2 Corporate Family Rating and its Ba2-PD Probability of Default Rating. The rating outlook is stable.

In related rating action, Moody's withdrew the corporate family rating, probability of default rating, and rating outlook assigned to BMI Group Holdings UK Limited. Standard combined Braas Monier and Icopal Holding ApS into BMI Group Holdings UK Limited ("BMI"), its indirect, wholly-owned European holding subsidiary. BMBG Bond Finance S.C.A., issuer of €435 million senior secured notes due 06/15/2021, is an indirect, wholly-owned, holding subsidiary of Standard Industries. Ba2 rating assigned to these notes is not impacted. The following ratings are affected by this action:

Moody's views anticipated lower pricing and maturity date extension for the notes as credit positives, though absolute levels of cash interest payments will increase moderately due to higher debt balances. Additional cash on hand adds to company's liquidity profile. Moody's calculates pro forma interest coverage approximating 3.4x for LTM 3Q17 and debt leverage of around 4.0x at October 1, 2017. Our calculations include standard adjustments for operating leases and pension liabilities, in addition to full-year earnings and assumption of related debt and pension obligations from Braas Monier Building Group S.A. ("Braas Monier"), acquired in May 2017.

However, Standard's debt leverage characteristics currently pose the greatest credit challenge, which is a direct result of the debt-financed acquisition of Icopal Holding ApS in April 2016, and partially debt-financed acquisition of Braas Monier. Upon closing the proposed notes issuance, balance sheet debt will total about $4.5 billion. Braas Monier has sizeable pension liabilities, totaling $425 million at FYE15 (last date at which this pension liability is publicly disclosed). Standard's total adjusted balance is about $5.2 billion pro forma at 3Q17, a sizeable increase from $2.4 billion at FYE15. Net cash interest payments will exceed slightly $225 million per year. Standard has a debt structure (six long-term notes) that does not lend itself well to deleveraging. We believe the company would not want to pay sizeable premium to exercise early repayment. Hence, Standard must continue to grow its earnings in order to improve key debt credit metrics.

Standard's liquidity profile, a key credit strength, providing a significant offset to its debt leveraged capital structure. We believe the company is committed to maintaining substantial liquidity at all times. Standard will generate free cash throughout the year. Cash on hand is sizeable with most located in the U.S. Our analysis considers potential future dividends to G-I Holdings Inc., Standard's indirect parent holding company. We believe ownership will continue to monetize its investment in Standard to the extent the company generates sufficient earnings and cash flow to support these dividends. Liquidity is supported further by its $650 million asset-based revolving credit facility expiring in 2020. We project Standard having full access, since it has cash to make up for the lack of eligible receivables and inventory. Due to large net cash balances, we do not anticipate utilization of the revolver over the next year. Standard has good alternate sources of liquidity, since its domestic long-term assets and most of Icopal's assets are unencumbered.

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on for a copy of this methodology.

Standard Industries Inc., headquartered in Parsippany, NJ, manufactures and sells residential and commercial roofing and waterproofing products, insulation products, aggregates, specialty construction and other products. Its building products businesses collectively represent the world's largest manufacturer and marketer of roofing products and accessories with operations primarily in North America and Europe. Annualized revenues approximate $5.6 billion. Standard Industries is privately-owned and does not disclose publicly available financial information.

Source Moodys

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