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I AGREE
08 Feb 2011
Approximately $1.0 billion of debt affected
New York, February 08, 2011 -- Moody's Investors Service assigned a Caa1 rating to Ply Gem Industries,
Inc.'s ("Ply Gem") proposed senior secured notes, and
affirmed its Caa1 Corporate Family Rating and Caa1 Probability of Default
Rating. The outlook is stable.
The following ratings/assessments were affected by this action:
Corporate Family Rating affirmed at Caa1;
Probability of Default Rating affirmed at Caa1;
Proposed senior secured notes due 2018 assigned Caa1 (LGD4, 50%);
$725.0 million senior secured notes due 2013 affirmed at
Caa1 (LGD4, 50%); and,
$150.0 million senior subordinated notes due 2014 affirmed
at Caa3 (LGD6, 92%).
RATINGS RATIONALE
The Caa1 rating assigned to the proposed $800 million senior secured
notes due 2018, the same rating as the corporate family rating reflects
its first priority interest in substantially all of the company's non-current
assets, second priority interest in the revolving credit facility's
collateral, and are supported by upstream guarantees from Ply Gem's
material domestic subsidiaries. Proceeds from the proposed notes
issuance will be used to redeem the company's $725 million
11.75% senior secured notes due 2013 -- at which time
the ratings will be withdrawn -- and also to pay redemption premiums
and other related fees and expenses. The proposed note issuance
will improve interest coverage ratios slightly due to its lower interest
rate than the Notes due 2013 despite a higher principal balance.
The transaction also improves Ply Gem's debt maturity profile,
with no maturities for the next three years. Also, reduced
interest costs of about $17 million annually should improve free
cash flow.
Ply Gem's Caa1 Corporate Family Rating remains constrained by weak credit
metrics, and also by uncertainty surrounding the company's end markets.
New residential construction and repair and remodeling sectors,
the company's primary end markets, are expected to remain challenging
throughout this year and into 2012. Despite the likelihood of some
margin expansion and new business, Ply Gem's debt leverage and interest
coverage credit metrics will remain stressed. On a pro form basis
through October 2, 2010, debt leverage worsened moderately
to about 7.6 times from 7.1 times, but EBITA-to-interest
expense improved slightly to above 0.8 times from 0.7 times
(all ratios adjusted per Moody's methodology).
Moody's views Ply Gem's market position as one of the larger manufacturers
of vinyl siding and windows and doors remains sound and is a credit positive.
Ply Gem's vinyl siding segment has performed well during the downturn,
but it has not fully offset weakness in other product lines. Revenues
from windows and doors are derived mainly from the residential construction
end market and are positioned to benefit from any rebound in new housing
starts.
The stable outlook incorporates Moody's view that Ply Gem will maintain
credit metrics appropriate for its rating category. Reduced interest
costs, availability under the company's revolving credit facility,
and the absence of any near-term maturities give the company adequate
financial flexibility to contend with on-going uncertainties in
its end markets.
When the company's end markets show sustainable growth Ply Gem needs
to demonstrate improvement in generating significant levels of operating
earnings and free cash flow. An improved liquidity profile supported
by solid free cash generation and operating performance that results in
debt-to-EBITDA remaining below 6.5 times on a sustainable
basis or EBITA-to-interest expense trending towards 1.2
times (all ratios adjusted per Moody's methodology) could result in positive
rating actions.
Factors that might stress the ratings include erosion in the company's
financial performance due to an unexpected decline in Ply Gem's end markets
or deterioration in the company's liquidity profile. Debt-to-EBITDA
trending towards 8.0 times or EBITA-to-interest expense
falling towards 0.5 times (adjusted per Moody's methodology)
could pressure the ratings.
The last rating action was on January 6, 2010, at which time
Moody's upgraded Ply Gem Industries, Inc.'s Corporate
Family Rating to Caa1 and its Probability of Default Rating to Caa1.
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.
Ply-Gem Industries, Inc., headquartered in Cary,
NC, is a leading manufacturer of residential exterior building products
in North America. The company's core products are vinyl siding,
windows, patio doors, fencing, railing, and stone
serving both the new construction and repair and remodel end markets.
CI Capital Partners LLC, through its respective affiliates,
is the primary owner of Ply Gem. Revenues for the twelve months
through October 2, 2010 totaled $990 million.
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
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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 Caa1 rating to Ply Gem's proposed senior secured notes
No Related Data.
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