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Rating Action:

Moody's affirms CPG's B2 CFR following TimberTech acquisition announcement; B1 assigned to proposed term loan

05 Sep 2012

$355 million of proposed loans rated

New York, September 05, 2012 -- Moody's Investors Service has affirmed the B2 Corporate Family Rating (CFR) and Probability of Default Rating of CPG I International Inc. (CPG) following its announcement of plans to acquire TimberTech Ltd. (TimberTech). Moody's also assigned a B1 rating to the proposed $355 million senior secured term loan due 2019. The outlook remains stable. The SGL-3 speculative grade liquidity rating will be revisited upon completion of the proposed acquisition and related refinancing transaction.

On August 15, 2012, CPG entered into a definitive agreement to purchase TimberTech, a US manufacturer of low maintenance decking, railing and fencing solutions, for $320 million from the Crane Group. Proceeds from the proposed $355 million term loan, a proposed $195 million of senior unsecured notes due 2020 (not rated), equity from CPG's sponsor, AEA Investors, and cash will be used to fund the acquisition, repay the existing loans and pay transaction costs.

The following rating was assigned subject to the review of final documentation:

B1 (LGD3, 38%) to the proposed $355 million first lien term loan due 2019; and

The following ratings were affirmed:

B2 Corporate Family Rating: and

B2 Probability of Default rating.

Upon completion of the refinancing transaction, ratings on existing $285 first lien term loan will be withdrawn.

RATINGS RATIONALE

The B2 CFR reflects CPG's high adjusted leverage of roughly 6.0x proforma for the acquisition of TimberTech and its limited end-market and product diversification. Proforma for TimberTech, CPG will generate roughly three quarters of its sales of residential trim, deck, rail, moulding, porch and paver products primarily in the US, with the balance from its Scranton Products and Vycom commercial businesses. CPG's residential sales are tied to repair and remodeling or homebuilding spending, thus highly seasonal, and are exposed to volatility from raw material pricing (primarily PVC, HDPE and PP resins). CPG's earnings have been relatively resilient in recent years, despite a weak residential housing market in the US, due to its dependence on the more stable repair and remodeling sector as well as the trend of synthetic products growing faster than the overall market. The shift to the higher quality synthetic products from wood has provided CPG with premium pricing opportunities and supports the company's high margins.

The acquisition of TimberTech expands CPG's product offering into capped composite decking and railings and should strengthen CPG's distribution network, particularly in the Midwest and Western US where CPG has historically had weaker distribution relationships. Moody's does not anticipate meaningful integration costs, other than possible labor efficiencies, since TimberTech only operates two manufacturing facilities which are believed to be underutilized. Moody's views the acquisition as fully-priced but consistent with CPG's growth strategy through selective acquisitions and product innovation.

The acquisition financing is expected to include a $110 million ABL revolver due 2017 (not rated) and is not expected to contain any financial maintenance covenants other than a springing fixed charge coverage test on the ABL. If the transaction closes as proposed, Moody's will consider raising the speculative grade liquidity rating to SGL-2 from SGL-3 given the added flexibility provided by the increased ABL size and the covenant-lite structure. In addition, the business is expected to generate positive annual cash flows despite seasonal working capital needs in the first quarter to invest in inventory and receivables for the summer season.

The stable outlook reflects Moody's expectation for modest top-line growth and improving operational performance, particularly in the second half of 2012 as CPG's weak 2011 rolls off its trailing earnings. Further, we expect debt-to-EBITDA to fall below 5.0x and that CPG will generate positive free cash flow over all twelve month periods through 2013.

We don't expect a ratings upgrade for the foreseeable future given the high post-acquisition leverage. The ratings are unlikely to be upgraded prior to the permanent reduction in debt that results in a reduction of Debt-to-EBITDA that is sustainable below 4.0x (including Moody's standard adjustments) and the completion of the TimberTech integration given the cyclicality of CPG's key end-markets (residential construction and remodeling, commercial construction and industrial) and its product concentration. Downward ratings pressure could arise if CPG were unable to lower its leverage below 5.5x over the next several quarters (including Moody's standard adjustments) following the TimberTech acquisition. Further, any meaningful sales disruptions or the tightening of liquidity resulting from the integration or the weakening of the US economy could lead to a ratings downgrade or negative outlook.

The principal methodology used in rating CPG was the Global Manufacturing Industry Methodology published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

CPG is a leading manufacturer of premium, low maintenance building products for residential (AZEK and TimberTech), commercial (Scranton Products) and industrial markets (Vycom). CPG has developed and/or acquired a number of branded products including AZEK Trim, AZEK Deck, AZEK Rail, TimberTech decking and railings, Comtec and Hiny Hiders (bathroom partition systems), Resistall and TuffTec and Duralife lockers. CPG has been owned by AEA Investors since 2005. Proforma revenues for the company are expected to approach $500 million for 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Brian Grieser
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms CPG's B2 CFR following TimberTech acquisition announcement; B1 assigned to proposed term loan
No Related Data.
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