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Rating Action:

Moody's affirms Assa Abloy's P-2 rating; outlook stable

16 Sep 2021

Stockholm, September 16, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Prime-2 (P-2) senior unsecured Commercial Paper ratings assigned to ASSA ABLOY AB (Assa Abloy or the company) and to Assa Abloy Financial Services AB under guarantee of Assa Abloy. The outlook remains stable.

"Today's rating action balances the risks associated with the sizeable debt-financed acquisition of the Hardware and Home Improvement ("HHI") division of Spectrum Brands with the business profile improvements of the acquisition and Assa Abloy's strong track record of high and stable profitability through cycle with a significant free cash flow generating ability" says Daniel Harlid, the Vice President - Senior Analyst and the lead analyst for Assa Abloy. "The rating action anticipates a deleveraging over the next years as well as a funding of the acquisition with longer term debt instruments", Mr. Harlid continues.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

On September 8, 2021, Assa Abloy announced that they have signed an agreement to acquire the Hardware and Home Improvement ("HHI") division of Spectrum Brands, Inc. (B1 RUR) for a purchase price of $4.3 billion on a cash and debt free basis. Headquartered in California, ("HHI") is a leading provider of security, plumbing, and builders' hardware products to the North American residential segment with a diversified product offering of locksets, faucets, and builders´ hardware. For the fiscal year ending September 2020, HHI reported $1.3 billion net sales with adjusted EBITDA margin of around 19%.

Although the transaction will be more or less entirely financed with new debt, increasing Moody's-adjusted debt / EBITDA to 3.4x pro forma (Moody's projection for 2021) from 1.7x for the twelve months that ended 30 June 2021, we understand management will prioritize deleveraging over the next two years. This will be facilitated by Assa Abloy's very strong free cash flow profile, where the company has been able to generate substantial free cash flow every year since at least 2004.

Moody's believes the acquisition will strengthen Assa Abloy's business profile due to the new exposure to the US residential real estate market, complementing its already very strong market share in the US commercial real estate market. That being said, the acquisition marks the largest transaction in Assa Abloy's history thus creating some execution risk linked to the integration of the acquisition and the deleveraging over the next years.

Moody's tolerance for elevated leverage for the affirmed P-2 rating is based on our expectations that the company will benefit from its now larger and more diversified revenue exposure and at the same time prioritize its free cash flow generation toward debt repayment. Moody's expects that the bridge facility that initially will be used to finance the acquisition will be replaced with long term financing over the next 12-18 months. Furthermore, we understand that this sizeable acquisition doesn't represent a shift to a more aggressive M&A strategy.

LIQUIDITY

Assa Abloy has a good liquidity profile. As of June 30, 2021, the company had SEK3.5 of cash on balance sheet and access to a high-quality €1.2 billion (around SEK12.6 billion) unutilized multicurrency revolving credit facility due in April 2026, without repeating material adverse change (MAC) clauses or financial covenants. Historically, the company has spent around SEK1.6 -- SEK1.8 billion on capex, which we believe will continue over the next 12 months. Other cash uses mainly include debt maturities over the next four quarters amounting to SEK4.2 billion.

OUTLOOK

The stable outlook is anchored in our view that Assa Abloy will be able to bring down its Moody's-adjusted debt / EBITDA to 2.5x - 2.8x and bring back free cash flow / debt above 10% over the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's would consider an upgrade of the rating to P-1 in case of a step change in the company's credit profile indicated by sustained debt reduction moving leverage towards 1.5x debt/EBITDA and EBITA margins sustainably in the high teens as a result of organic growth and streamlining its processes.

Moody's could downgrade Assa Abloy's rating, in case of a deterioration of EBITA margins (excluding restructuring charges) significantly below its historical levels of the mid-teens in percentage terms, accelerated acquisition expenditure or shareholder distributions in the absence of cash flow improvements or if FCF/Debt remains sustainably below 10% or RCF/net remains sustainably below 17%. In addition, failure to replace the bridge facility with longer term financing would also cause negative ratings pressure.

PRINCIPAL METHODOLOGY

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.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: ASSA ABLOY AB

....Commercial Paper, Affirmed P-2

..Issuer: Assa Abloy Financial Services AB

....BACKED Commercial Paper, Affirmed P-2

Outlook Actions:

..Issuer: ASSA ABLOY AB

....Outlook, Remains Stable

..Issuer: Assa Abloy Financial Services AB

....Outlook, Remains Stable

COMPANY PROFILE

Headquartered in Stockholm, Sweden, Assa Abloy is a leading supplier of locks and locking solutions. The group sells security solutions under a broad range of brand names and through its various distribution channels in both mature and emerging markets. The group has four major product lines: (1) mechanical locks, lock systems and fittings; (2) electromechanical and electronic locks; (3) entrance automation systems; and (4) security doors and hardware. For the 12 months ended June 2021, the group generated revenue of SEK91 billion (equivalent to almost $9.5 billion). Assa Abloy is a publicly listed company, with a market capitalization of around SEK305 billion as of 14 September 2021.

REGULATORY DISCLOSURES

For 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. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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.

Daniel Harlid
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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