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Rating Action:

Moody's assigns Ba2 rating to Prestige Brands' $600 million term loan offering

03 Jun 2021

New York, June 03, 2021 -- Moody's Investors Service, ("Moody's") assigned a Ba2 rating to Prestige Brand, Inc.'s proposed $600 million senior secured term loan. The company's B1 Corporate Family Rating, B1-PD Probability of Default Rating, and B2 rated senior unsecured notes are unchanged. The speculative-grade liquidity rating of SGL-2 is unchanged and the outlook remains stable.

Net proceeds from the proposed $600 million senior secured term loan along with $100 million of from the company's Asset Backed Lending ("ABL") facility plus additional cash on hand will be used to refinance the existing $475 million term loan. Net proceeds will also be used to fund the $230 million debt financed acquisition of a portfolio of over-the-counter consumer brands from Akorn Operating Company LLC, including the leading eye care brand TheraTears. The acquisition of the Akorn assets will increase Prestige's debt-to-EBITDA as of March 31, 2021 to about 4.9x from 4.5x. Moody's expects financial leverage to improve over time and for the acquisition to strengthen Prestige's current eye care portfolio and to accelerate overall revenue growth. Moody's took no action on the Ba2 rating on the existing term loan and will withdraw the rating once the facility is repaid as part of the proposed transaction.

The agreement to acquire Akorn pharmaceutical's Consumer Health ("Akorn Consumer Health") unit for $230 million in cash is credit negative because it will increase leverage. However, Prestige's B1 Corporate Family Rating and stable outlook are unaffected because leverage will remain within our expectations for the rating and the acquisition will strengthen the company's presence in the OTC eye care category. The offering also favorably extends Prestige's debt maturity profile and reduces cash interest expense. The company's next significant maturity is a $400 million unsecured note due January 2028. Please see the issuer comment on www.moodys.com for additional discussion of the acquisition.

Assignments:

..Issuer: Prestige Brands, Inc.

....Senior Secured Term Loan, Assigned Ba2 (LGD2)

RATINGS RATIONALE

Prestige's B1 CFR reflects its strong and stable free cash flow from over-the-counter ("OTC") branded products. The company's products are generally among the leading brands in their respective niche categories and largely allow consumers to treat common, recurring ailments. Prestige's branded products typically have long commercial histories and have built broad appeal and trust among consumers. Prestige's outsourced manufacturing creates a variable cost structure and limits the need for sizable capital spending, which favorably contributes to cash flow stability. That said, the company operates in mature categories with flat-to-low single-digit organic growth and competition from private label/store brands that erodes market share and revenue. In 2020, sales in certain categories related to travel, cough and cold, and sports activities declined due to reduced consumption, reflecting headwinds related to the coronavirus. Moody's projects the EBITDA margin will remain relatively steady given the company's continued productivity improvements, cost reduction initiatives, and a variable cost structure due to the outsourced manufacturing model. The acquired Akorn brands are not expected to be margin accretive. Prestige's modest scale as compared to large diversified consumer peers and OTC business focus create greater relative exposure to category competition and concentrated retail distribution.

Environmental, Social and Governance considerations:

In terms of environmental, social and governance (ESG) considerations, the most relevant factor for Prestige's ratings are governance considerations related to its financial policies. The company's financial leverage is high, a byproduct of past debt financed acquisitions and as evidenced by this transaction. Moody's expects continued acquisition event risk but that the company will pursue acquisitions within its 3.5x-5.0x leverage target (based on the company's calculation; 4.6x actual as of March 2021, pro forma for the acquisition). However, Moody's does not expect Prestige to engage in any large debt financed acquisitions over the next two years. Moody's expects the company's credit metrics to continue to improve over the next 12-18 months, supported by modest earnings growth and solid free cash flow. Prestige favorably does not pay a dividend but is likely to devote more free cash flow to share repurchases than debt reduction as leverage falls.

From an environmental perspective, Prestige has taken steps to minimize its resource footprint at its Lynchburg, Virginia manufacturing site. The facility converted nearly 30% of lights to more energy-efficient LED lighting during fiscal 2020 to help reduce electrical usage. Between Fiscal 2018 and 2020, Prestige has increased recycling rates by over 6% and reduced total waste by 20%. The company's manufacturing site is certified a "no exposure site" in Virginia meaning that it has no exposures to open waterways. Lastly, the company is committed to manage its over 100 global suppliers in a responsible manner so that they are aligned with its mission and values. Prestige expects its suppliers to obey the laws that require them to treat workers fairly, provide a safe and healthy work environment and protect environmental quality. Most importantly, the company expects its suppliers to promote principles of ethical behavior in their workplace, to operate in a manner consistent with Prestige's Supplier Code of Conduct, and to demonstrate a commitment to environmental, employment and community standards.

The coronavirus outbreak and the government measures put in place to contain it continue to disrupt economies and credit markets across sectors and regions. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, there is uncertainty around our forecasts. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook reflects Moody's expectation that Prestige will generate free cash flow in a $200 million annual range, maintain good liquidity, and pursue modestly sized acquisitions within its stated leverage target.

The ratings could be downgraded if Prestige's operating performance deteriorates, if the company's strong free cash flow were to weaken, or if the company's financial policies become more aggressive, including large debt funded acquisitions or shareholder distributions. Additionally, Moody's could downgrade the ratings if the company's liquidity deteriorates or if debt to EBITDA is sustained above 5.5x.

The ratings could be upgraded if Prestige demonstrates consistent positive organic revenue growth, sustains strong profitability and free cash flow, and continues to maintain good liquidity. Prestige would also need to exhibit a more conservative financial policy such that debt to EBITDA is sustained below 4.0x times.

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Prestige Consumer Healthcare, Inc., headquartered in Tarrytown, New York, manages and markets a broad portfolio of branded over-the-counter (OTC) healthcare and household cleaning products. The company is publicly-traded and generates about $997 million in annual revenue, pro forma for the proposed acquisition of the Akorn Consumer Health assets.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

Chedly Louis
VP - Senior Credit Officer
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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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