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Rating Action:

Moody's affirms Ideal Standard's Ca CFR, upgrades instrument ratings

19 Oct 2016

London, 19 October 2016 -- Moody's Investors Service, ("Moody's") has today affirmed Ideal Standard International S.A. ("Ideal Standard" or "the company") corporate family rating (CFR) of Ca and the B3 instrument rating of the Series AA Notes (15.75% Priority PIK Senior Secured Notes due 2018). Concurrently, Moody's has upgraded the instrument ratings of the Series A Notes (15.75% Priority PIK Senior Secured Notes due 2018) and the Series B Notes (15.75% / 11.75% PIK Toggle Senior Subordinated Secured Notes due 2018) to Caa1 and Caa2 from Caa3 and Ca, respectively. Moody's has also downgraded the company's probability of default rating (PDR) to Ca-PD from Caa3-PD. All instruments are issued by Ideal Standard International S.A. and the outlook for all ratings is negative.

RATINGS RATIONALE

Ideal Standard's Ca and negative outlook reflects the company's i) unsustainably high Moody's adjusted leverage at more than 40.0x expected 2016 EBITDA (including shareholder loans and 9.0x excluding); (ii) continued negative free cash flow to fund capex, working capital outflows, interest payments and restructuring costs and (iii) nearing debt maturity of the Revolving Credit Facility (RCF) in April 2017 and the Senior Secured Notes on May 1, 2018.

Moody's treats the shareholder funding in the form of Preferred Equity Certificates (PECs) and intercompany loans as debt. Including approximately €2.3 billion PECs and intercompany loans (as of 30 June 2016), Moody's adjusted leverage is expected to increase to around 40.0x in December 2016.

The high leverage and maturity profile outweighs the company's recent track record of recovering operational performance and improved cash flow generation through sales growth and gross margin improvements.

The upgrades of the instrument ratings on the Series A and Series B Notes reflect the higher expected recovery value driven by the sustainable improvement in operational performance. Management adjusted EBITDA in 2015 almost doubled to €71.2 million from €39.6 million last year and increased to €73.1 million in the 12 months to June 2016. The strong improvement in EBITDA was mainly driven by the cost reductions of the restructuring programs completed in 2015, continued cost efficiency actions and operational leverage from top-line growth.

However, the company's liquidity remains weak. Although the debt restructuring in June 2014 removed a cash interest burden of approximately €32 million per annum, the company continues to rely on new liquidity lines to fund its working capital, capex and restructuring needs.

As of 30 June 2016, liquidity consisted of €45.1 million cash balance, with its €25 million RCF fully drawn and a new €20 million Series AA Notes issued in February 2016 provided by the shareholders. Additional liquidity is limited with most of €65 million local credit and factoring lines (in Egypt, Bulgaria, Italy, France and the UK) drawn as of June 2016. In February 2016, the company announced the intention of the shareholders to provide an €80 million uncommitted financing line in the form of Series AAA Notes, available for drawing from January 1, 2017 to September 30, 2017 to replace the €25 million RCF and approximately €65 million local credit facilities that mature starting April 2017.

RATING OUTLOOK

The negative outlook reflects the continued uncertainty over the company's liquidity position and recovery prospects.

FACTORS THAT COULD LEAD TO AN UPGRADE

Positive pressure on the ratings is unlikely at this stage, but could occur in case of a very material operational turnaround leading to a significant improvement in liquidity and de-leveraging.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Negative pressure is likely to occur in case of a delay of the restructuring measures and/or triggering of the EBITDA trigger cash coupon or any other events leading to further deterioration in liquidity.

The principal methodology used in these ratings was Consumer Durables Industry published in September 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in Belgium, Ideal Standard is a manufacturer of bathroom fixtures, fittings and furniture, including ceramic fixtures (sinks, toilets), brass fittings (taps), acrylic fixtures (spa and whirlpool tubs) and furniture (towel racks, toilet seats). The company operates under the brand names of Ideal Standard, Armitage Shanks, Jado, Porcher, Vidima and Ceramica Dolomite. In 2015, the company generated €726 million revenues, operating through 20 manufacturing plants in Europe and in Egypt and employed almost 10,000 people.

Currently joint voting and board control is shared between Bain Capital, Anchorage Capital Group and Third Avenue Focused Credit Fund.

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.

Rommens, Pieter
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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