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Rating Action:

Moody's downgrades Forterra Finance LLC to B3; outlook remains negative

Global Credit Research - 30 Aug 2017

New York, August 30, 2017 -- Moody's Investors Service downgraded Forterra Finance LLC's ("Forterra") corporate family rating to B3 from B1. The two notch downgrade reflects the deterioration in Forterra's operating results and credit metrics, the company's substantially higher leverage and weaker coverage, the significant execution risk ahead, and the expectation that the company's credit profile will remain weak over the next 12 to 18 months. The rating outlook remains negative.

The following is a summary of Moody's ratings and actions taken for Forterra:

- Corporate Family Rating, downgraded to B3 from B1;

- Probability of Default Rating, downgraded to B3-PD from B1-PD;

- Speculative Grade Liquidity Rating, downgraded to SGL-3 from SGL-2;

- Senior Secured First Lien Term Loan, downgraded to B3 (LGD4) from B1 (LGD4).

Outlook Actions:

- Outlook, remains negative.

RATINGS RATIONALE

Forterra's key credit metrics have deteriorated significantly over the last six months as debt increased and operating performance declined. The B3 corporate family rating ("CFR") reflects our expectations for continued high debt leverage (measured as Moody's adjusted Debt to EBITDA) above 8.5x as well as Forterra's relatively weak interest coverage (measured as EBITA/Interest) hovering around 1.0x. The B3 CFR also considers Forterra's deteriorating operating performance, and takes into account our expectation for continued execution challenges ahead. Forterra's low organic revenue growth and capacity to cope with thinning margins are also accounted for in the rating. We also expect a negative impact from Hurricane Harvey on the company's FY 2017 results. The rating is supported by Forterra's adequate liquidity with no near-term maturities and access to committed external financing. We do, however, see the company's existing Tax Receivable Agreement signed with its long-term sponsor, Lone Star Funds, as a credit negative that can affect liquidity. The company's leading position as a water infrastructure participant in North America and the positive momentum anticipated in their main end-markets are also reflected in the rating.

The negative outlook reflects the risk that Forterra's may not be able to improve operating performance enough to reverse its earnings drop and successfully boost its leverage and coverage metrics over the next 12 to 18 months to better align with its B3 ratings. The negative outlook considers the risk of Forterra being unable to successfully implement all the changes needed to turn its lagging results around while integrating all of its acquired assets into the existing platform.

WHAT COULD CHANGE RATINGS UP/DOWN

Factors that Could Lead to an Upgrade

Forterra could be upgraded if its credit metrics improve to these levels:

• Adjusted debt-to-EBITDA sustained below 6.0x.

• Interest coverage (measured as EBITA-to-Interest Expense), sustained above 1.5x.

• Consistent positive free cash flow is maintained.

Factors that Could Lead to a Downgrade

Forterra could be downgraded if adjusted credit metrics weaken to these levels:

• Adjusted debt-to-EBITDA sustained above 8.0x.

• Interest coverage (measured as EBITA-to-Interest Expense), sustained below 1.0x.

• Operating and profit margins don't improve.

• Further deterioration in liquidity profile

CORPORATE PROFILE

Headquartered in Irving, Texas, Forterra manufactures concrete, steel and ductile water infrastructure products in the US and eastern Canada. The company operates under two segments: 1) Drainage Pipe & Products and 2) Water Pipe & Products. The sponsor is Lone Star with approximately 71% ownership. For the 12 months ended June 30, Forterra generated revenues of $1.57 billion and Moody's adjusted EBITDA of $165.4 million. All calculations include Moody's standard adjustments.

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Al Urbina
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

Glenn B. Eckert
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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