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Rating Action:

Moody's affirms Carlisle Companies' Baa2 senior unsecured rating; assigns Baa2 senior unsecured rating to proposed notes issuance

13 Nov 2017

New York, November 13, 2017 -- Moody's Investors Service, ("Moody's") affirmed Carlisle Companies Inc.'s ("Carlisle") Baa2 senior unsecured rating following company's recent announcement that it issued new long-term debt, which Moody's anticipated. In related rating actions, Moody's assigned Baa2 ratings to company's proposed issuance of $1.0 billion in senior unsecured notes, broken down between a 7-year tranche and a 10-year tranche. Proceeds from the issuances will be used to term-out borrowings under the company's revolving credit facility. Out of the borrowings under the revolving credit facility, $670 million was used to acquire Accella Performance Materials, a provider of polyurethane foam for building applications, from private-equity firm Arsenal Capital Partners and closed on November 1. Balance of cash will be used for general corporate purposes including potential acquisitions. Moody's expects the proposed notes to have substantially the same terms and conditions as the existing senior unsecured notes due 2020 and 2022. We view the proposed transaction as credit positive, improving liquidity under the revolving loan, and taking advantage of low interest rates. Rating outlook is stable.

The following ratings were affected by this action:

Assignments:

..Issuer: Carlisle Companies Incorporated

....Senior Unsecured Regular Bond/Debenture, Assigned Baa2

Outlook Actions:

..Issuer: Carlisle Companies Incorporated

....Outlook, Remains Stable

Affirmations:

..Issuer: Carlisle Companies Incorporated

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

RATINGS RATIONALE

Carlisle's Baa2 Senior Unsecured Rating results from sound EBITA margins in excess of 15%, driven by its Construction Materials ("CCM") that manufactures roofing membranes used in commercial applications. Accella will merge CCM business, making this business a more significant driver of future earnings and cash flow and contributing slightly more than 60% of Carlisle's total pro forma revenue, up from approximately 56% in 2016. Debt leverage credit metric will remain supportive of current ratings despite balance sheet debt increasing permanently by $1.0 billion to about $1.6 billion. Adjusted debt-to-EBITDA will increase to around 2.25x on a pro forma basis as of September 30. Carlisle established significant cushion within its credit profile to accommodate higher leverage (at September 30 adjusted debt-to-EBITDA stood at 1.3x and LTM adjusted EBITA-to-interest was 18.2x) such that its profile remains representative of the Baa2 rating category.

Additionally, CCM is Carlisle's best business. It benefits from sound demand for commercial roofing repair products, main driver of CCM's revenues, which exhibit less volatility than new construction. Upfront costs associated with roof repair or replacement are worth the investment compared with the time and potential costs associated with repairing water damage and replacing damaged property. Therefore, storm damage and aging roofs provide a steady source of demand for the company.

Carlisle has a solid liquidity profile reflecting our view that the company will generate substantial free cash flow throughout the year and maintain sizeable revolver availability. Upon closing of the proposed transaction, Carlisle will have an extended maturity profile; its revolving credit facility expires in early 2022, followed by senior unsecured notes in late 2022.

Carlisle's credit profile is constrained by a higher level of debt, requiring continued earnings growth to support or imprve debt leverage ratios. Also, Carlisle's credit quality is constrained by its high dependence on CCM, accounting for about 85% of its 2016 EBIT (excluding corporate expenses and including impairment charges) and creating reliance on volatile domestic construction spending. The U.S. was responsible for 77% of Carlisle's revenues in 2016, indicative of its weak geographic diversity. Additionally, Carlisle Interconnect Technologies ("CIT"), company's second driver of revenues and resulting earnings, is under pressure. The CIT segment is experiencing additional costs to make its medical products more competitive and lower volumes driven by in-sourcing initiatives by a large commercial aerospace customer. CIT accounted for about 23% of Carlisle's 2016 revenues. Should sufficient reinvestment opportunities not be available, Carlisle may upsize its dividend payments or boost share repurchases, potentially degrading leverage metrics and liquidity.

Stable rating outlook reflects our view that Carlisle will follow conservative financial policies supportive of its current senior unsecured rating, resulting in strong operating performance and adjusted debt leverage remaining around 2.0x.

Positive rating actions could take place if Carlisle continues to benefit from strength in construction end markets while expanding business diversity, improves margins across all business segments, and grows revenues beyond $5 billion.

Downward ratings pressures will result from more aggressive financial strategy, particularly with respect to acquisitions and share repurchases, or the maintenance of less-than-adequate liquidity sources. In addition, a downgrade could occur if Carlisle's operating performance falls below our expectations, resulting in adjusted EBITA margins trending towards 12.5% and adjusted debt-to-EBITDA sustained above 3.0x.

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

Carlisle Companies Inc., headquartered in Scottsdale, Arizona, is one of the largest North American providers of roofing materials to the domestic construction market. The addition of Accella's approximately $430 million a year in revenue would bring CCM's combined pro forma revenue for the 12 months through September 30, 2017 to approximately $4.3 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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