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Rating Action:

Moody's assigns first time B2 rating to TCG AcquisitionCO B.V.

20 Sep 2021

Frankfurt am Main, September 20, 2021 -- Moody's Investors Service ("Moody's") has today assigned a B2 corporate family rating (CFR) and a B2-PD probability of default rating (PDR) to TCG AcquisitionCO B.V. ('TCG' or the company) the holding company at the top of the restricted group and at which the group will provide consolidated reports going forward. Concurrently, Moody's assigned B2 instrument ratings to the €315 million senior secured term loan B maturing in September 2028 and the €65 million senior secured revolving credit facility maturing in March 2028. The outlook assigned on all ratings is stable.

The proceeds from the new facilities will serve to finance TCG's acquisition by financial sponsor Crestview from Royal Ten Cate (B2 stable).

RATINGS RATIONALE

TCG's rating positively reflects (1) its leading market position in the upstream segment and top 10 position in the mid and downstream segments in a very fragmented industry, (2) moderately growing end markets at low single digits in sports and high single digits in landscaping as artificial turf allows for increased usage and water savings compared to natural turf; (3) vertical integration along the value chain allow for captive intercompany sales and pull through of margins (4) widely diversified customer base with relatively low churn; (5) strong track record of improving operating performance and integrating several acquired companies over the past 5 years reflected in an EBITA-Margin of around 10% expected for year end 2021; (6) relatively good cash generation due to moderate working capital and maintenance capex requirements.

TCG's B2 CFR is weakly positioned considering its (1) relatively small size with €471 million of revenue LTM July 2021; (2) fairly limited product and production diversification with only 4 manufacturing plants producing artificial turf for sports and landscape end-markets; (3) a highly competitive end markets especially in the sports segment (about 80% of revenue in 2020) as the lion's share of new contracts is awarded through public or private tenders (4) execution and integration risk related to TCG's growth strategy largely driven by continuous bolt on acquisitions; (5) its relatively high starting leverage of 5.8x for the B2 rating category, which Moody's expect to decline to below 5.5x over the next 12-18 months; and (6) its modest starting cash position.

Since, 2017 RTC has followed an active buy and built strategy along the entire artificial turf value chain and successfully acquired and integrated about 13 small to medium size companies Hence, Moody's expects TCG to continue to direct the lion's share of its free cash flow to further consolidate the fairly fragmented industry and hereby strengthen its market position. Continuous bolt on acquisitions are likely help to deleverage the group's balance sheet over the medium term but at the same time expose the company to meaningful integration risk and potentially require additional financing through the RCF.

ESG

Environmental considerations favoring synthetic turf demand are expected to grow due to water and fertilizer savings. Furthermore, European regulation for microplastic are likely to ban microplastic from synthetic turf solutions from 2022 with a 6 year transition period. This will require the industry to switch to alternative low / non-infill turf systems. TCG already offers alternative solutions meeting expected regulations and expects to capture market share from smaller competitors and low cost Asian imports.

The company is owned by the private equity firm Crestview and management. Private equity funds tend to have higher tolerance for leverage, a greater propensity to favor shareholders over creditors as well as a greater appetite for M&A to maximize growth and their return on their investment.

LIQUIDITY

Moody's deem TCG's liquidity as adequate and expects TCG's €65 million RCF to be drawn by about €10 million at closing of the acquisition to finance day to day cash needs as post-closing of the transaction only €5 million of cash will remain on balance sheet. The rating agency expects TCG to generate about €20 million of free cash flow in 2022, which is likely to redeem the drawn portion of the RCF and to fund bolt on acquisitions on an opportunistic basis.

The RCF has a springing net leverage covenant at 7.3 times, which only will be tested if the RCF is drawn by more than 40%. Moody's expects TCG to remain well below the covenant level if tested.

OUTLOOK

The outlook on all of TCG's rating is stable, reflecting Moody's view that moderate market growth coupled with management efficiency initiatives will help to reduce the company Debt/EBITDA to well below 5.5x over the next 12-18 months and to generate sufficient free cash flow to repay the RCF and built a substantial cash buffer on its balance sheet or internally finance bolt on acquisition in 21/22.

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

An upward revision of the rating would likely result from (1) adjusted EBITA margins reaching mid-teens; (2) Moody's-adjusted leverage ratio declining well below 5.0x on a sustained basis and; (3) material sustained positive cash flow generation as evidenced by adj. FCF /debt in the high single digits in combination with an excellent liquidity.

Downward pressure on the rating could occur if (1) adjusted EBITA margins are not maintained at above 10% on a sustained basis; (2) Moody's-adjusted debt/EBITDA ratio does not reduce over the next 12- 18 months to below 5.5x; and (3) if the group's liquidity weakens as evidenced by negative free cash flow or material debt funded acquisitions.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287885. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

TenCate Grass Holding B.V. is a leading manufacturer, distributor and installer of artificial turf solutions for both sports and landscaping with reported revenues of €471 million in LTM July 2021. The company operates a vertically integrated business model along the artificial turf value chain and has its headquarter in Nijverdal in the Netherlands. It is owned by funds advised from the US based private equity firm Crestview and by its senior management.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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 UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Janko Lukac
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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