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Rating Action:

Moody's changes Atkore International's outlook to stable from negative

11 Nov 2015

Approximately $670 million of debt affected

New York, November 11, 2015 -- Moody's Investors Service changed Atkore International, Inc.'s (Atkore) outlook to stable from negative. At the same time, Moody's affirmed the B3 corporate family rating, B3-PD probability of default rating, the B3 rating on Atkore's senior secured first lien term loan and the Caa2 rating on its senior secured second lien term loan. The change in outlook reflects the recent improvement in Atkore's operating results and the expectation this trend will continue and lead to improved credit metrics.

The following ratings were affected in this rating action:

Outlook Actions:

....Changed To Stable From Negative

Affirmations:

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

.... Corporate Family Rating, Affirmed B3

.... $420 Million Senior Secured First Lien Term Loan, Affirmed B3 (LGD4)

.... $250 Million Senior Secured Second Lien Term Loan, Affirmed Caa2 (LGD5)

RATINGS RATIONALE

Atkore's B3 corporate family rating reflects its elevated leverage, weak interest coverage, low margins, sensitivity to volatile steel and copper prices, as well as its reliance on nonresidential construction activity, which drives demand for most of its electrical and tubular products. The rating also considers the highly competitive market in which the company operates and its limited product differentiation. The rating is supported by the company's scale, diversity of products, attractive position in certain end-markets, its enhanced focus on core product categories and pricing discipline and its adequate liquidity.

Atkore's operating performance was weak during the first half of fiscal 2015 (ends September 2015) due to declining product prices and a profit margin squeeze. Atkore generally maintains a spread between purchased steel and copper prices and the price of the final processed product it sells. However, margins can be volatile due to the timing lag between steel and copper purchases for inventory and the shipment of final products to customers. This timing lag weighed on profit margins in early fiscal 2015 as steel and copper product prices compressed and more than offset increased volumes driven by improved nonresidential construction. As a result, Atkore's adjusted EBITDA declined by about 36% in the first half of the fiscal year.

Atkore's performance improved materially during the third quarter as the company benefitted from improved spreads between steel and copper purchases for inventory and final product prices, as well as cost cuts and productivity improvements and contributions from recent acquisitions. Atkore was able to widen its material spreads during the quarter even though prices declined as the company and its competitors focused on improved pricing discipline. Moody's believes this positive trend continued in the company's fiscal fourth quarter enabling Atkore to produce adjusted EBITDA in the range of $120 million to $130 million for the 2015 fiscal year, which is moderately higher than the level produced in fiscal 2014.

Atkore typically generates seasonally strong free cash flow in its fiscal fourth quarter and Moody's believes that occurred again this fiscal year. The company's cash flow generation was also likely aided by its focus on reducing inventories in a declining price environment and as it began to liquidate the inventory of its discontinued fence and sprinkler pipe product lines. Therefore, Atkore may have generated enough free cash to retire its $59 million revolver borrowings by fiscal year end. Assuming the revolver was paid down, then Atkore's credit metrics likely improved from the end of last fiscal year when its adjusted leverage ratio (Debt/EBITD) was 6.7x and its interest coverage ratio (EBIT/Interest) was 0.9x. Moody's expects Atkore's operating performance to improve modestly in fiscal 2016 as it benefits from a continued gradual recovery in nonresidential construction and ongoing cost cutting and productivity improvement initiatives. Its credit metrics should improve as well, but the magnitude could be limited unless the company chooses to use some of its free cash flow to retire a portion of its term loan debt since it is expected to have little or no revolver debt outstanding as of September 2015.

Atkore has a good liquidity profile and no debt maturities until 2018. The company had $33 million of cash and $226 million of borrowing availability on its $325 million asset based revolving credit facility as of June 2015. Atkore had $59 million of outstanding borrowings on the revolver, which is mainly used for seasonal and cyclical working capital support and to fund acquisitions. The company's revolver borrowings likely declined significantly or were paid off in full during the quarter ended September 2015 leading to an enhanced liquidity profile.

An upgrade of Atkore's rating is unlikely over the near term given its elevated leverage, weak interest coverage and low profit margins. However, its rating could be raised if operating cash flow is sustained above 12% of outstanding debt, its EBIT margin exceeds 5%, its leverage ratio (Debt/EBITDA) is sustained at less than 5.0x and adequate liquidity is maintained.

Atkore's rating could be lowered if EBIT/interest is sustained below 1.0x, its EBIT margin declines to less than 2% on a sustained basis, Debt/EBITDA continues to exceed 5.5x or there is a material contraction in liquidity.

The principal methodology used in these ratings was Global Steel Industry published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Atkore International, Inc., headquartered in Harvey, Illinois is a manufacturer of products that deploy, isolate, and protect a structure's electrical circuitry and are typically used in non-residential construction. These products include steel and PVC electrical conduit, armored and metal-clad cable and metal framing and support structures such as cable trays, ladders and wire baskets. The company operates in two reportable segments: Global Pipe, Tube & Conduit (about 60% of sales) and Global Cable and Cable Management (40%). Atkore's revenues for the trailing twelve months ended June 26, 2015 were approximately $1.75 billion. Atkore International, Inc. (Atkore) is a wholly owned subsidiary of Atkore International Holdings Inc., which in turn is 100% owned by Atkore International Group Inc. Clayton Dubilier & Rice LLC (CD&R) is the majority owner of Atkore International Group Inc.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Michael Corelli
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Atkore International's outlook to stable from negative
No Related Data.
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