New York, January 29, 2021 -- Moody's Investors Service, ("Moody's") today
affirmed Steelcase Inc.'s ("Steelcase") senior
unsecured ratings at Baa2. The outlook was changed to negative
from stable.
The affirmation of the Baa2 reflects Steelcase's good market position
in the office furniture sector and leading global brands. Despite
a very challenging operating environment brought on by the global pandemic
and its effects on the office space, Steelcase has taken swift action
to right size its expense structure and minimize operating losses.
Moody's expects that the office space will undergo changes to reverse
densification in order to ensure social distancing following resolution
of the coronavirus pandemic. Steelcase is well positioned to benefit
from these trends given their product offerings of functional and versatile
office furniture. Additionally, the company's strong
liquidity position gives it time to manage through the weak cycle.
The outlook was changed to negative because the level of investment by
corporations and the ability for employees to continue to work from home
will bring uncertainty to the office space market and permanent structural
changes could prolong the timing and weaken the level of the recovery.
Moody's believes Steelcase's recovery may take an extended
period of time to overcome as office markets shift. These factors
relate to health and safety concerns and demographic and societal trends
that create social risk. Moody's expects Steelcase's operating
performance will remain weak over the next 12-18 months as corporations
take longer to upgrade office spaces and employees take longer to return
to the office. Both of these drivers will depend on the success
of the rollout of the vaccine. The disruption that the coronavirus
outbreak has caused in employees working from home and the continued uncertainty
of when it would be safe to return to the office and at what scale will
continue to bring high uncertainty to Steelcase's business and its
ability to recover from this downturn in a timely manner. A prolonged
weak environment could place downward pressure on Steelcase's ratings
if demand does not recover meaningfully over the next 12-18 months
such that credit metrics are restored to pre-pandemic levels.
Moody's expects Steelcase businesses to generate around $250
million of Moody's-adjusted EBITDA in FY 2022 (ending February
2022) compared to $390 million in FY 2020 prior to the pandemic.
Moody's further expect the company to have relatively break-even
free cash flow during FY 2022 as swift cost saving actions will continue
to offset weaker sales and preserve liquidity. Debt to EBITDA will
also remain elevated at around 3.0x during this period.
Moody's expects the company to maintain excellent liquidity with
cash balances at approximately $450 million and full availability
under the revolver of $250 million. Better than typical
credit metrics are needed because of the cyclical nature of Steelcase's
business and the potential long-term pressures on the office furniture
market.
The following ratings/assessments are affected by today's action:
Ratings Affirmed:
..Issuer: Steelcase Inc.
....Senior Unsecured Notes, Affirmed
Baa2
....Senior Unsecured Shelf, Affirmed
(P)Baa2
Outlook Actions:
..Issuer: Steelcase Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
Steelcase's credit profile reflects its leading market share and strong
brand recognition in office furniture, strong end market diversification,
and good geographic reach throughout the U.S., Europe
and Asia, making it the most global firm among its competitors.
The credit profile also incorporates Steelcase's moderate financial policies.
Steelcase's susceptibility to revenue cyclicality in economic downturns
as well as its moderate size relative to similarly rated companies constrain
the credit profile.
The level of future investment by corporations amid a re-evaluation
of office space needs in the aftermath of the pandemic create risk of
permanent structural changes that could prolong the timing and weaken
the level of the recovery in the office products market. Moody's
views these as social risks.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Moody's
analysis has considered the effect on the performance of Steelcase from
the current weak US economic activity and a gradual recovery for the coming
months. Although an economic recovery is underway, it is
tenuous, and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high. Moody's regards the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety. The consumer durables
industry is one of the sectors most meaningfully affected by the coronavirus
because of exposure to discretionary spending.
From a governance perspective, the company has a moderate financial
policy which is balanced with reinvestment in the business through acquisitions,
a stable dividend which grows commensurate with earnings, and opportunistic
share repurchases (largely offsetting dilution). Like many companies
with significant family ownership and influence, Moody's believes
that Steelcase will continue to pursue strategies that preserve value
for the long run, including a cautious approach to leveraging transactions.
Moderate leverage and strong liquidity provide flexibility to manage through
economic cycles.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Steelcase's scale meaningfully increases,
market fundamentals improve, and the company's operating performance
and operating margins meaningfully improve. Credit metrics would
also need to be sustained at strong levels, with debt to EBITDA
maintained below 1.5x.
The ratings could be downgraded if office furniture market fundaments
weaken resulting from shifting workplace needs that are not fully offset
by growth initiatives. Additionally, persistent weak EBITDA
performance or weak or negative free cash flow could also lead to a downgrade.
A downgrade could also occur if debt to EBITDA remains above 3.0x
for a prolonged period of time.
The principal methodology used in these ratings was Consumer Durables
Industry published in April 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060509.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Grand Rapids, Michigan, Steelcase is a designer,
manufacturer, and marketer of office furniture, primarily
in North America (approximately 72% of sales) and Europe.
The company sells its products through various channels including independent
dealers, company-owned dealers and directly to end users
and government units. The company is publicly traded with roughly
48% of the voting rights and approximately 18% of the economic
interest held by members of the founding families. Revenues are
approximately $2.9 billion as of LTM November 27,
2020.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.
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.
Maria Iarriccio
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
John E. Puchalla, CFA
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
