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I AGREE
26 Apr 2011
Approximately $2.0 billion of debt affected
New York, April 26, 2011 -- Moody's Investors Service assigned a Ba3 to Building Materials Corporation
of America's ("BMCA") proposed $1.0 billion Senior
Unsecured Notes due 2021, and affirmed its Ba3 Corporate Family
Rating and Ba3 Probability of Default Rating. Proceeds from the
notes issuance will be used to make a $500 million dividend to
G-I Holdings Inc.(unrated), BMCA's indirect
parent holding company, to repay the company's existing term
loan due 2014, and to pay interest rate swap termination fees and
other expenses. In a related rating action, Moody's
upgraded the company's existing Senior Secured Notes due 2020 to
Ba1 from Ba2 and its Senior Unsecured Notes due 2018 and 2020 to Ba3 from
B1. The rating outlook is stable.
The following ratings/assessments were affected by this action:
Corporate Family Rating affirmed at Ba3;
Probability of Default Rating affirmed at Ba3;
$250 million Sr. Sec. Notes due 2020 upgraded to
Ba1 (LGD2, 16%) from Ba2 (LGD3, 33%);
$450 million Sr. Unsec. Notes due 2018 upgraded to
Ba3 (LGD4, 50%) from B1 (LGD5, 73%);
$325 million Sr. Unsec. Notes due 2020 upgraded to
Ba3 (LGD4, 50%) from B1 (LGD5, 73%);
$1.0 billion Sr. Unsec. Notes due 2021 rated
Ba3 (LGD4, 50%); and,
The Ba2 (LGD3, 33%) rating for the $498.4 million
(originally $975.0 million) Sr. Sec. Term
Loan due 2014 has been withdrawn.
RATINGS RATIONALE
The Ba3 Corporate Family Rating is supported by the company's strong market
position in the roofing repair and remodeling sector and expectations
that the company will continue to generate strong operating performance
resulting from stable demand for roofing repair, the main driver
of BMCA's revenues. Additionally, its adjusted EBITA margins
are likely to remain well above 20%, aided by improved operating
efficiencies and an ability to mitigate cost increases. Key credit
metrics will deteriorate modestly due to the net increase of about $500
million of balance sheet debt from the proposed debt issuance, but
remain supportive of the rating. Moody's calculates that
the company's EBITA-to-interest expense will fall
to 3.75 times from 4.0 times on a pro forma basis for 2010.
Debt-to-EBITDA will be about 3.5 times, inclusive
of the proposed note issuance and debt issued by G-I Holdings Inc.
Constraining BMCA's rating is its business profile with predominately
reliance on a single line of business with minimum international exposure.
Also, the company has negative tangible net worth and a high debt-to-book
capitalization ratio, which are characteristics of highly speculative
grade ratings. Although Moody's recognizes that some portion
of the proposed dividend will remove BMCA from a contingent liability,
in aggregate, the company will have dividend in excess of $625
million within the last three fiscal quarters, exhibiting a change
in financial policy by the company. However, BMCA's
ability to generate strong cash flows and a very good liquidity profile
give it flexibility to offset some of the company's credit weaknesses,
and positions it well relative to the Ba3 Corporate Family Rating.
Proceeds from the notes issuance will be used to make a dividend of approximately
$500 million to G-I Holdings Inc., to repay
the company's entire $498.4 million senior secured
term loan due 2014, to terminate an interest rate swap associated
with the term loan, and to pay related fees and expenses.
At least $284.5 million of the dividend will be used to
secure letters of credit issued by G-I Holdings Inc.,
which will release BMCA from providing credit enhancements provided in
the form letters of credit issued under the revolving credit facility.
The repayment of the existing term loan extends company's debt maturity
profile. Except for the revolving credit facility with no borrowings
outstanding that will likely be addressed by year-end, BMCA
will have no maturities until 2018.
The Ba3 rating assigned to the proposed $1.0 billion Senior
Unsecured Notes due 2021, and the rating upgrades of the Senior
Unsecured Notes due 2018 and 2020 to Ba3, same rating as the corporate
family rating, from Ba1 incorporate their position as the majority
of committed capital in BMCA's capital structure. The unsecured
notes will be pari passu to each other. They also benefit from
the debt issued by G-I Holdings Inc., which Moody's
considers as junior capital until defeased or fully repaid.
The upgrade of BMCA's $250 million Senior Secured Notes due
2020 to Ba1, two notches above the corporate family rating,
from Ba2 results from the amount of senior debt in BMCA's capital
structure. BMCA's partial recapitalization reduces its secured
committed credit facilities by approximately $498.4 million.
This reduction in other secured debt improves the recovery values for
these notes, albeit on a second lien basis to the company's
revolving credit facility, in a recovery scenario. These
notes also benefit from $1.0 billion of additional junior
capital, warranting the lift in the rating.
Management has performed admirably in the downturn with operating performance
expected to improve. The company could be considered for positive
rating momentum if retained earnings after dividends result in a stronger
equity position. Over time, debt-to-book capitalization
trending towards 60% (adjusted per Moody's methodology) would support
consideration of higher ratings.
Factors that might pressure the ratings include erosion in the company's
financial performance due to a decline in the repair and remodeling sectors,
deterioration in the company's liquidity profile, large dividends,
or significant cash outflows supporting parent company debt obligations.
Adjusted EBITA margins trending below 20% or EBITA/interest expense
nearing 3.5 times (adjusted per Moody's methodology) could result
rating pressures.
The principal methodology used in rating Building Materials Corporation
of America was the Global Manufacturing Industry Methodology, published
December 2010. Other methodologies used include Loss Given Default
for Speculative Grade Issuers in the US, Canada, and EMEA,
published June 2009.
Building Materials Corporation of America, headquartered in Wayne,
NJ, is a national manufacturer and marketer of a broad line of asphalt
roofing products and accessories for the residential and commercial roofing
markets. The company also manufactures specialty building products
and accessories for the professional and do-it-yourself
remodeling and residential construction industries. BMCA operates
under the trade name GAF Materials Corp. Ronnie F. Heyman,
through various trusts and holding companies, is the beneficial
owner of BMCA. Revenues for 2010 totaled approximately $2.5
billion.
REGULATORY DISCLOSURES
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
Analytics information.
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.
New York
Peter Doyle
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Ba3 rating to BMCA's proposed senior unsecured notes
No Related Data.
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