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Rating Action:

Moody's assigns Caa2 rating to The AZEK Company's proposed unsecured notes; affirms B3 CFR

06 May 2020

Approximately $320 million of debt securities rated

New York, May 06, 2020 -- Moody's Investors Service (Moody's) assigned a Caa2 rating to CPG International LLC's d/b/a The AZEK Company's (AZEK) proposed $320 million senior unsecured note offering due 2025. At the same time Moody's affirmed the company's B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR), B2 rating on its first lien senior secured term loan due May 2024, and Caa2 rating on its senior unsecured notes due October 2021. The outlook remains stable.

The new note offering is being placed to refinance the upcoming maturity of AZEK's $315 million senior unsecured notes due 2021. Moody's views the transaction as credit positive from the perspective of the extension of the company's debt maturity profile, with the next maturity occurring in March 2022, when revolver expires. Pro forma leverage is expected to be unchanged from the 7.1x Moody's-adjusted debt to EBITDA as of December 31, 2019 and incorporating the revolver draw during the subsequent quarter.

The rating affirmations reflect the company's strong market position in the low maintenance building products industry, good operating margin profile, and exposure to repair and remodeling market for the majority of revenue, which is expected to demonstrate less volatility than new construction over the next year and limit Moody's anticipated weakening in credit metrics.

The stable outlook reflects Moody's expectation that the company will reduce capital expenditures, apply cost controls and maintain adequate liquidity over the next 12 to 18 months.

The following rating actions were taken:

Assignments:

..Issuer: CPG International LLC

....Senior Unsecured Regular Bond/Debenture, Assigned Caa2 (LGD5)

Affirmations:

..Issuer: CPG International LLC

.... Probability of Default Rating, Affirmed B3-PD

.... Corporate Family Rating, Affirmed B3

....Senior Secured Bank Credit Facility, Affirmed B2 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa2 (LGD5)

Outlook Actions:

..Issuer: CPG International LLC

....Outlook, Remains Stable

RATINGS RATIONALE

AZEK's B3 Corporate Family Rating reflects: 1) exposure to the cyclical residential and repair/remodeling end markets and the expectation of weaker demand over the next year caused by the coronavirus outbreak; 2) the company's high financial leverage as a result of a debt burden of approximately $1.1 billion, which exceeds the company's revenue by about one and a quarter times, and Moody's expectation of leverage rising in the near term; 3) the competition that AZEK faces in the low maintenance building products segment; and 4) sensitivity of operating margins, cash flows and liquidity to changes in raw material costs.

On the other hand, the rating is supported by: 1) AZEK's solid market position in the low maintenance building products industry; 2) the portion of revenue from the residential R&R, which tends to be more stable during a recessionary environment than new construction; 3) Moody's expectation of good operating margins; and 4) adequate liquidity anticipated over the next 12 to 15 months, supported by the company's access to its revolving credit facility.

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

The rating could be upgraded if the company demonstrates steady revenue growth while maintaining stable operating margins, sustains debt to EBITDA below 5.5x and EBITA to interest coverage above 2.0x, and maintains robust liquidity.

Ratings could be downgraded if revenues and earnings decline materially due to weakness in demand for key products. The ratings could also be downgraded if the company were to undertake debt financed acquisitions or implement aggressive shareholder return policies, such as debt funded distributions, or if liquidity were to deteriorate. Finally, if the company's debt to EBITDA is sustained above 7.5x or if EBITA to interest falls below 1.2x, the rating could be lowered.

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.

The AZEK Company, headquartered in Chicago, Illinois, is a leading manufacturer of premium, low maintenance building products for residential (AZEK Building Products, TimberTech, Versatex and UltraLox) and commercial (Scranton Products and Vycom) markets in the U.S. and Canada. The company's product offerings include deck, trim, rail, pavers, partitions, lockers, and plastic sheet products. AZEK was acquired by Ares Management and Ontario Teachers' Private Capital in September 2013. In the LTM period ended December 31, 2019, the company generated approximately $823 million in revenue.

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

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.

Natalia Gluschuk
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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