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Rating Action:

Moody's assigns B2 CFR to MIWD Holdco II LLC; outlook stable

30 Oct 2019

Approximately $675 million of debt securities rated

New York, October 30, 2019 -- Moody's Investors Service ("Moody's") assigned a B2 Corporate Family Rating and a B2-PD Probability of Default Rating to MIWD Holdco II LLC (the parent of MI Windows and Doors, LLC ("MIWD")), and a B2 rating to its proposed $675 million first lien senior secured term loan B due 2026. The outlook is stable.

In the proposed transaction, MIWD will acquire Milgard Manufacturing, Inc. ("Milgard"), a window and patio door manufacturer in the Western US from its current owner Masco Corporation for $725 million. The acquisition will be financed with the proceeds from the $675 million first lien senior secured term loan and a $350 million preferred equity investment from an affiliate of Koch Equity Development LLC. These proceeds will also finance a $100 million distribution to existing MIWD shareholders. At the same time, the company will also put in place a $75 million ABL revolving credit facility expiring in 2024.

The following rating actions were taken:

Issuer: MIWD Holdco II LLC

Corporate Family Rating, assigned B2

Probability of Default Rating, assigned B2-PD

Proposed $675 million first lien senior secured term loan due 2026, assigned B2 (LGD4)

The outlook is stable

RATINGS RATIONALE

The B2 Corporate Family Rating reflects the company's: 1) good position in manufacturing of vinyl and aluminum doors and windows and improved revenue scale following the acquisition of Milgard; 2) expanded national footprint through the combination and good diversity of product price points and distribution channels; 2) solid operating margin profile and positive free cash flow; 3) financial strategy that outlines plans for deleveraging; and 4) Moody's expectation that residential and repair and remodeling end markets will demonstrate stable trends over the next 12 to 18 months, supporting the company's performance.

On the other hand, the rating considers: 1) limited operating history in current configuration; 2) risks associated with the integration of the acquisition, which could include incurrence of higher costs, performance below expectations, or operational disruptions; 3) volatility in margins and pricing inherent in the windows and doors manufacturing sector given the cyclicality of the end markets, and highly competitive industry environment; 4) aggressive financial policies, which include preferred equity financing that has a PIK component and debt-like characteristics; 5) high leverage of 4.4x Moody's-adjusted debt to EBITDA, and 6.5x including the preferred instrument; and 6) moderately high customer concentration with top ten customers representing about one third of total revenue.

The B2 rating on first lien senior secured term loan, at the same level with CFR, reflects the preponderance of this class of debt in the company's capital structure. MI Windows and Doors, LLC and its parent MIWD Holdco II LLC are joint borrowers under the term loan. The loan benefits from guarantees of all subsidiaries of MIWD Holdco II LLC.

The stable outlook reflects Moody's expectations for stable conditions in the US residential and repair and remodeling end markets, and smooth integration of the company's transformative acquisition.

MIWD will have good liquidity, supported by positive free cash flow, available ABL capacity, springing financial covenant and an extended debt maturity profile.

Ratings could be upgraded if the company exercises conservative financial strategies and delevers below 3.0x (and 5.0x on a fully-adjusted basis), accomplishes the successful, seamless integration of the transformative acquisition and continues to improve its scale, while end markets remain supportive of stable operating performance, including maintenance of margins.

Ratings could be downgraded if the company experiences difficulties in the integration of the acquired business, if operating margins were to deteriorate, including due to weakening in the company's end markets, or if financial policies grew more aggressive, including if fully-adjusted leverage were to exceed 7.5x.

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.

MI Windows and Doors, LLC is a manufacturer of vinyl and aluminum windows and patio doors in the US, serving the residential end markets of new construction and repair and remodeling. The company also extrudes the majority of its vinyl and aluminum needs in house. In Q4 2019, MIWD will acquire Milgard, the manufacturer of vinyl, aluminum, fiberglass, and wood windows and patio door products in the Western US with in-house vinyl extrusion, fiberglass pultrusion, and fiberglass tempering capabilities. In the LTM period ended June 30, 2019, the company generated approximately $1.2 billion in pro forma revenue.

REGULATORY DISCLOSURES

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.

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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.

Natalia Gluschuk
Asst Vice President - 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

Dean Diaz
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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