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04 Apr 2011
Approximately $250 million of debt affected
New York, April 04, 2011 -- Moody's Investors Service assigned first-time ratings since the
company's emergence from Chapter 11 proceedings of B2 Corporate
Family Rating and B2 Probability of Default Rating to Masonite International
Corporation, a wholly-owned subsidiary of Masonite Inc.
(collectively "Masonite"). In a related rating action
Moody's assigned a B3 rating to the proposed $250 million senior
unsecured notes due 2021. Proceeds from the notes issuance will
be used to return up to $125 million of capital to existing shareholders
with the balance used for general corporate purposes including financing
potential acquisitions and to pay related fees and expenses. The
rating outlook is stable.
The following ratings/assessments were affected by this action:
Corporate Family Rating assigned B2;
Probability of Default assigned B2; and,
Senior unsecured notes due 2021 rated B3 (LGD4, 66%).
Masonite's B2 Corporate Family Rating reflects the increased leverage
level following the issuance of the proposed Notes. Moreover,
it incorporates our view that management is pursuing a relatively aggressive
financial policy by distributing up to $125 million to existing
shareholders, reducing financial flexibility at a time when liquidity
preservation is paramount. This is a significant dividend,
which Moody's calculates to be about five to six years of the company's
future free cash flows. Moody's believes that the new home
construction and the repair and remodeling sectors, the main drivers
of the company's revenues, will experience lackluster growth
prospects over the next twelve to eighteen months. Additionally,
Masonite will likely pursue larger and more complex acquisitions than
previous purchases as part of its growth strategy, creating higher
degrees of integration risks and potential for increased working capital
requirements. Although the company has improved its operating leverage
by reducing headcount, closing underutilized factories, and
streamlining its administrative and manufacturing processes, its
operating margins are expected to remain fragile over the rating horizon.
Moody's projects EBITA-to-interest expense will be
slightly below 1.25 times, but debt-to-EBITDA
to be around 4.5 times (ratios adjusted per Moody's methodology).
Overall, Masonite's debt leverage credit metrics are in-line
with its rating.
The rating is supported by Moody's view that Masonite is well positioned
to economically benefit when its end markets return to more normalized
levels. It has a significant global footprint with products across
all price points and styles for homes and commercial applications such
as hotels, offices, and schools. The company maintains
strong, long-standing relationships with "big box"
retailers, which could further strengthen its market position once
the construction sector recovers and demand increases.
The stable outlook reflects Moody's expectation that Masonite will
generate better operating profits, improving interest coverage ratios
to levels that are more appropriate for the rating category. Revolving
credit facility availability and the absence of near-term maturities
give the company some financial flexibility to contend with ongoing uncertainties
in its end markets.
Moody's does not anticipate favorable rating pressures over the intermediate
term until the company's end markets improve. Masonite needs
to demonstrate its ability to generate better levels of earnings and free
cash flow, resulting in improved credit metrics. Over the
longer term, EBITA-to-interest expense trending towards
3.0 times and debt-to-EBITDA sustained below 4.0
times (all ratios adjusted per Moody's methodology), while improving
its liquidity profile, could result in positive rating actions.
Masonite must demonstrate that its past cost reduction actions and acquisitions
are resulting in better operating performance that result in better credit
metrics. EBITA-to-interest expense trending towards
1.0 times or debt-to-EBITDA nearing 5.0 times
(adjusted per Moody's methodology), further dividends or share repurchases,
or a deteriorating liquidity profile may result in negative rating pressures.
The B3 rating assigned to the proposed $250 million senior unsecured
notes due 2021, one notch below the corporate family rating,
results from their position as the most junior committed debt in Masonite's
The principal methodologies used in this rating were Global Manufacturing
Industry published in December 2010, and Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Masonite Incorporated, headquartered in Tampa, FL, through
its operating subsidiaries, is one of the largest manufacturers
of doors in the world. It offers both interior and exterior doors
for residences and commercial buildings. Revenues for the twelve
months ended December 31, 2010 totaled about $1.4
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B2 Corporate Family Rating to Masonite
250 Greenwich Street
New York, NY 10007
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