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Global Credit Research - 15 Dec 2010
Approximately $195 million of debt affected
New York, December 15, 2010 -- Moody's Investors Service assigned public ratings of B2 Corporate Family
Rating and B2 Probability of Default Rating to Henry Company, LLC
("Henry"). In a related action Moody's assigned
a B2 rating to the company's proposed 1st lien senior secured bank
credit facility and a Caa1 rating to its proposed 2nd lien senior security
credit facility. Proceeds from these credit facilities and cash
on hand will be used to refinance existing debt, to finance a dividend
to Henry shareholders and AEA Investors, LP, the majority
owner of Henry, 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;
$20.0 million 1st lien senior secured revolving credit facility
due five years from closing assigned B2 (LGD3, 44%);
$135.0 million 1st lien senior secured term loan due six
years from closing assigned B2 (LGD3, 44%); and,
$40.0 million 2nd lien senior secured term loan due six
and a half years from closing assigned Caa1 (LGD5, 80%).
Henry's B2 Corporate Family Rating is constrained by its exposure
to cyclical end markets including the repair and remodeling sector and
new home construction, as well as the commercial construction industry.
Henry is also a small company relative to other manufacturing companies
based on revenues and absolute EBITA levels, leaving little cushion
for earnings variability. It is exposed to volatile raw material
costs for commodities such as asphalt and petrochemicals and may be unable
to immediately pass through these costs, potentially adding to margin
pressures. The rating also reflects significant channel distribution
concentration, with the big box retailers representing a concentration
of sales. Upon completing the dividend distribution Henry will
have negative tangible net worth.
Nevertheless, Henry's rating reflects the company's resilient
performance during the economic and housing downturn, and its well-established
brand names for roofing and sealant products, resulting in solid
EBITA margins. Additionally, interest coverage ratios and
financial leverage will remain reasonable even though balance sheet debt
is increasing due to the debt-financed dividend. Moody's
expects the company to continue generating high single-digit percentages
of free cash flow-to-debt metrics on an annual basis.
The rating presumes that free cash flow will be used for debt reduction.
An adequate liquidity profile supports the rating, too.
The B2 rating assigned to the proposed $155 million first lien,
senior secured bank credit facility, the same rating as the corporate
family rating, reflects its position as the preponderance of debt
in Henry's capital structure and priority of payment in a recovery
scenario. This credit facility will have a first priority security
interest in substantially all of the company's assets and benefits
from $40 million in junior capital.
The Caa1 rating assigned to the proposed $40 million second lien,
senior secured bank credit facility, two notches below the corporate
family rating, has a second priority interest in substantially all
of the company's assets, effectively making it unsecured debt
since Henry would have little remaining tangible assets after first lien
debt holders are repaid in a recovery scenario.
The stable outlook reflects Moody's expectations that Henry's
credit metrics will improve due to improving operating margins and debt
reduction from free cash flow, providing it the ability to contend
with ongoing economic uncertainties and the resulting impact in its end
Moody's does not anticipate favorable rating pressures over the
intermediate term until Henry grows its revenues while improving its operating
performance and liquidity profile. Over the longer term,
revenues in excess of $500 million or EBITA-to-interest
trending towards 3.0 times and debt-to-EBITDA sustained
below 4.5 times (ratios adjusted per Moody's methodology)
could result in a positive rating action.
Factors which might pressure the ratings include erosion in the company's
financial performance, debt financed acquisitions, more dividends
to shareholders or a deteriorating liquidity profile. Debt-to-EBITDA
sustained above 5.5 times or EBITA-to-interest expense
trending towards 1.5 times (all ratios adjusted per Moody's methodology)
for an extended period of time would likely result in negative rating
The principal methodologies used in this rating were Global Manufacturing
Industry published in December 2007, and Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Henry Company, LLC, headquartered in El Segundo, California,
develops, manufactures and markets materials for the construction
industry focusing primarily on roofing, sealing and paving applications.
Henry's business is primarily operated and conducted in the U.S.
and Canada. AEA Investors LP, through its affiliates,
is the primary owner of Henry.
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 maintaining
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
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B2 Corporate Family rating to Henry Company; outlook stable
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