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Rating Action:

Moody's assigns Baa3 to Masco's senior unsecured notes

09 Sep 2020

New York, September 09, 2020 -- Moody's Investors Service (Moody's) assigned a Baa3 rating to Masco Corporation's (Masco) proposed issuance of $300 million senior unsecured notes due 2030. Moody's also assigned a Baa3 rating to the company's proposed issuance of $100 million senior unsecured notes due 2047, which is an add-on to Masco's existing $300 million notes due 2047. Masco's Baa3 existing senior unsecured ratings are not impacted by the proposed transactions. The outlook remains stable.

Moody's views the proposed transaction as credit positive since proceeds will be used to redeem the company's $400 million senior unsecured notes due 2021, at which time the rating for these notes will be withdrawn. The transaction will eliminate the company's refunding risk in early 2021. Available cash will be used to pay the call premium, accrued interest and related fees and expenses in a leverage neutral transaction. Interest savings from the proposed refinancing will be nominal relative to Masco's total future cash interest payments, which Moody's estimates will be nearly $150 million per year.

"Masco is taking advantage of the strong performance of its paint products and removing next year's refunding risk," according to Peter Doyle, a Moody's VP-Senior Analyst.

The following ratings/assessments are affected by today's action:

Assignments:

..Issuer: Masco Corporation

....Senior Unsecured Notes, Assigned Baa3

RATINGS RATIONALE

Masco's Baa3 senior unsecured rating reflects Moody's expectation that Masco will continue to generate high profitability, with EBITA margin staying above 15%, and debt-to-LTM EBITDA remaining below 3.0x. Masco has a robust liquidity profile. The company has the capacity to generate free cash flow in excess of $450 million, $1.0 billion of cash at Q2 2020 and considerable revolver availability. This gives the company a significant amount of financial flexibility and further supports Masco's credit profile. Moody's believes that Masco will not use its liquidity to reduce debt.

Despite the economic disruptions caused by the coronavirus outbreak, Masco's businesses are showing resiliency, especially Decorative Architectural Products, which principally includes paints and other coating products. This business grew in Q2 2020 by 8.3% on a year-over-year basis, generating revenue of $896 million. Those remaining home due to the coronavirus outbreak are taking advantage of the time to upgrade living spaces.

Governance characteristics we consider in Masco's credit profile include a conservative financial policy evidenced by its low leverage. The company's financial policy also entails using a portion of free cash flow for share repurchases. Once the current economic uncertainty clears, Moody's believes that Masco will restart share repurchases. As of June 30, 2020, Masco has approximately $900 million remaining authorization for share repurchases. However, we believe future share repurchases will be tempered by economic conditions and acquisitions.

The stable outlook reflects Moody's expectation that Masco will continue to perform well, generate solid operating margins and cash flows, and maintain leverage below 3.0x.

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

Factors that could lead to an upgrade:

(All ratios incorporate Moody's standard adjustments)

» Debt-to-LTM EBITDA is sustained below 2.0x

» EBITA margin is maintained near 12.5%

» LTM free cash flow-to-debt and liquidity remains robust

» Trends in end markets can support organic growth

» Financial policies remain supportive of an investment grade rating, such as maintaining a balanced approach towards rewarding shareholders and protecting the interest of debt holders

Factors that could lead to a downgrade:

(All ratios incorporate Moody's standard adjustments)

» Debt-to-LTM EBITDA is sustained above 3.0x

» EBITA margin is trending towards 10%

» LTM free cash flow-to-debt is sustained below 10%

» The company's liquidity profile deteriorates

Masco Corporation, headquartered in Livonia, Michigan, is among the largest North American manufacturers of a number of home improvement and building products, including faucets, architectural coatings, and lighting. Sales to The Home Depot, Inc. (A2 stable) contributed 37% of the company's 2019 revenue.

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

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.

Peter Doyle
Vice President - Senior 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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