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Rating Action:

Moody's assigns a Baa1 rating to Acuity's proposed senior unsecured notes

27 Oct 2020

Approximately $500 million of debt securities rated

New York, October 27, 2020 -- Moody's Investors Service assigned a Baa1 rating to Acuity Brands Lighting, Inc.'s (Acuity) proposed $500 million senior unsecured note offering due 2030. The rating outlook is stable.

The proceeds of the proposed financing will be used to redeem the company's existing $400 million senior unsecured term loan maturing in 2023, with the rest to be used for general corporate purposes. The transaction results in an increase in debt, with pro forma debt to LTM EBITDA of approximately 1.4x and EBITA to interest of 13.5x at Acuity's FY 2020 ended August 31.

The proposed notes will be issued by Acuity Brands Lighting, Inc., a principal operating subsidiary of Acuity Brands, Inc. (the parent), who is a guarantor of the notes along with ABL IP Holding LLC (Acuity Brands Lighting, Inc.'s subsidiary). Acuity Brands Lighting, Inc. generates the majority of the consolidated group's revenue and holds the majority of assets.

The following rating actions were taken:

Issuer: Acuity Brands Lighting, Inc.

Proposed $500 million senior unsecured notes due 2030, assigned Baa1

Outlook, stable

RATINGS RATIONALE

Acuity's Baa1 senior unsecured rating is supported by: 1) the company's strong position within the lighting and building management solutions market and its transition from a pure lighting products company into a technology driven solutions provider; 2) governance considerations including Acuity's conservative financial policy and capital structure; 3) strong free cash flow, expected in the range of $300 to $340 million per year and free cash flow to debt metrics of about 40%; and 4) an excellent liquidity profile allowing for significant financial flexibility.

On the other hand, the rating is constrained by: 1) the company's moderate scale compared to similarly rated manufacturing peers and its geographic concentration in North America; 2) susceptibility to the cyclical end markets served and current soft conditions in the company's non-residential markets due to the negative impact of the pandemic on demand; 3) operating margin pressure from factors such as competition, exposure to tariffs, pricing challenges and product mix; 4) the company's share repurchase program, which is expected to be actively utilized; and 5) risks associated with an acquisitive growth strategy, which may include purchases of large scale companies in addition to tuck-in acquisitions and lead to higher leverage or cause integration challenges.

The stable outlook reflects Moody's expectation that Acuity will continue to operate with conservative leverage and generate strong free cash flow over the next 12 to 18 months.

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

Ratings could be upgraded if Acuity significantly improves its scale and increases geographic, end market and product diversification. Stable end market conditions, EBITA margin expansion above 17%, debt to EBITDA sustained below 1.5x including through periods of acquisitions, and continued strong free cash flow to debt and interest coverage metrics would also be important upgrade considerations.

Ratings could be downgraded if Acuity's end markets experience prolonged soft conditions resulting in revenue declines, EBITA margins continue to weaken, EBITA to interest coverage declines below 9.0x, debt to EBITDA is sustained above 2.5x, including due to a large debt funded acquisition or aggressive share repurchases, or free cash flow to debt declines below 15%.

The principal methodology used in this rating 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.

Headquartered in Atlanta, Georgia, Acuity Brands Lighting, Inc. is a provider of indoor and outdoor lighting and building management solutions for commercial, residential, infrastructure and industrial end markets throughout North America (about 98% of total revenue) and internationally. The company's product portfolio is represented by over 2.0 million stock keeping units, including luminaires, lighting controls, controllers for building systems, power supplies, prismatic skylights, drivers, and energy optimizing integrated systems. Acuity operates 18 manufacturing facilities in North America and Europe. In FY 2020 ended August 31, the company generated approximately $3.3 billion in revenue and nearly $500 million in adjusted EBITDA.

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is 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.

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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