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Rating Action:

Moody's confirms Standard Industries' Ba2 CFR; rating outlook stable

18 Feb 2016

Approximately $2.9 billion of rated debt affected

New York, February 18, 2016 -- Moody's Investors Service confirmed Standard Industries Inc.'s ("Standard" and fka Building Materials Corporation of America) Ba2 Corporate Family Rating and Ba2-PD Probability of Default Rating following the company's previous announcement that it is acquiring Icopal. In related rating actions, Moody's confirmed the Ba2 rating assigned to Standard's unsecured notes and assigned a Ba2 to its proposed $650 million senior unsecured notes. Proceeds from the proposed debt issuance along with cash on hand will be used for the acquisition of Icopal. The rating outlook is stable. This completes the review Moody's initiated on January 25, 2016.

Standard is acquiring Icopal A/S, a pan-European manufacturer of roofing and other waterproofing products with about revenues of €1 billion ($1.1 billion), from Investcorp Ltd. for approximately €1 billion. On a pro forma basis, the combined company will have about $4 billion in sales, market exposure to Europe, and access to new products.

The following ratings are affected by this action:

Corporate Family Rating confirmed at Ba2;

Probability of Default Rating confirmed at Ba2-PD;

Senior Unsecured Notes due 2024 confirmed at Ba2 (LGD4);

Senior Unsecured Notes due 2025 confirmed at Ba2 (LGD4);

Senior Unsecured Notes assigned Ba2 (LGD4).

RATINGS RATIONALE

The Ba2 Corporate Family Rating remains appropriate at this time due to Standard's robust liquidity profile, characterized by cash on hand and revolver availability, aggregating to about $1.0 billion at seasonal low point. The company is committed to maintaining substantial liquidity at all times. Moody's expects Standard to maintain strong operating margins, despite Icopal generating lower margins than Standard. The acquisition of Icopal boosts Standard's already-strong market position in both the US and European roofing repair sectors, which both offer stable demand within the remodeling space.

The rating also considers the potential for integration challenges. Standard is entering new markets within Europe where labor laws and building codes are very different from the US. The company will have to contend with new supply and distribution channels. Also, the company's balance sheet debt is increasing by $650 million, bringing total adjusted balance sheet debt to about $3.1 billion on a pro forma basis (including Moody's adjustments for operating leases and pension liabilities). Moody's estimates a deterioration in debt credit metrics, with adjusted debt-to-EBITDA worsening to the 3.75x -- 4.0x range (pro forma) from about 3.5x at FY15. In addition, adjusted interest coverage (measured as EBITA-to-interest expense) falls moderately to around 3.75x (pro forma) from about 4.1x for FY15. However, Moody's recognizes that Standard should continue to generate free cash flow (excluding dividends) throughout the year in spite of higher debt service requirements and working capital needs, giving the company financial flexibility to contend with potential labor or market disruptions while servicing its basic cash obligations.

The stable rating outlook reflects Standard's commitment to maintaining its robust liquidity profile. Moody's expectation for solid operating performance over the next 12 to 18 months should translate into better debt credit metrics that remain supportive of the current ratings.

Moody's does not anticipate positive rating actions over intermediate term, since Standard's key debt credit metrics are stretched from the Icopal acquisition. However, positive ratings momentum could occur if the Standard successfully integrates Icopal and benefits from growth in its end markets, resulting in operating performance that exceeds Moody's forecasts and yields the following credit metrics:

- Debt-to-EBITDA sustained below 3.0x (3.75x - 4.0x pro forma)

- EBITA-to-interest expense sustained above 4.5x (3.75x pro forma)

- Free cash flow-to-debt consistently above 10% (10.0% for FY15)

Negative rating pressures could ensue if Standard's operating performance falls below expectations or if the company faces unforeseen challenges with the integration of Icopal, resulting in the following credit metrics (ratios include Moody's standard adjustments) and characteristics:

- Debt-to-EBITDA sustained above 4.25x

- EBITA-to-interest expense remains below 3.0x

- Significant deterioration in the company's liquidity profile

- Larger than projected shareholder distributions

- Large debt-financed acquisitions

The Ba2 rating assigned to the proposed $650 million unsecured notes reflects Moody's expectations that these notes will have similar terms and conditions including guarantees as Standard's other notes, ranking pari passu with each other in a recovery scenario.

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Standard Industries Inc. (fka Building Materials Corporation of America), headquartered in Parsippany, NJ, operates under the trade name GAF and is a national manufacturer and marketer of roofing products and accessories for the residential and commercial roofing markets. Trusts for the benefit of the heirs of Ronnie F. Heyman are the owners of the company. Upon completing the acquisition of Icopal, Standard will be one of the largest producers of roofing and related products in Europe as well. Annualized revenues on a pro forma basis total approximately $4.0 billion.

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 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.

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.

Peter Doyle
Vice President - Senior Analyst
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

Glenn B. Eckert
Associate Managing Director
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 confirms Standard Industries' Ba2 CFR; rating outlook stable
No Related Data.
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