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Rating Action:

Moody's downgrades Road Infrastructure to Caa1 CFR

07 Dec 2018

New York, December 07, 2018 -- Moody's Investors Service ("Moody's") downgraded Road Infrastructure Investment Holdings, Inc.'s Corporate Family Rating ("CFR") to Caa1 from B2, first lien senior secured ratings to B3 from B1, and Probability of Default rating to Caa1-PD from B2-PD. The rating outlook is stable.

Downgrades:

..Issuer: Road Infrastructure Investment Holdings, Inc.

.... Probability of Default Rating, Downgraded to Caa1-PD from B2-PD

.... Corporate Family Rating, Downgraded to Caa1 from B2

....Senior Secured 1st Lien Term Loan, Downgraded to B3 (LGD3) from B1 (LGD3)

....Senior Secured 1st Lien Revolving Credit Facility, Downgraded to B3 (LGD3) from B1 (LGD3)

Outlook Actions:

..Issuer: Road Infrastructure Investment Holdings, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

"Road Infrastructure's rating downgrade reflects its weak liquidity and the risk of breaching financial covenant as a result of earnings deterioration and increased debt leverage", says Jiming Zou, a Moody's Vice President and the company's lead analyst.

The company's liquidity is constrained by the reduced availability under its revolving credit facility, a small cash balance and large seasonal working capital needs for the first half of 2019. Road Infrastructure had only $12 million availability under its revolver and $11 million cash balance at the end of September 2018. Although working capital swings will return cash to the company in the fourth quarter, the availability under its $75 million revolver by the end of 2018 will remain well below prior-year levels and likely insufficient to meet the large working capital needs for the business in the first half of 2019.

The company is unlikely to tap additional borrowings and there is an increasing likelihood of a covenant breach in the near term. The reported 6.96x first lien net leverage ratio in the third quarter of 2018 is pushing close to the 7.0x maximum allowed level under the first lien credit agreement. Given recent earnings deterioration, the company will need to obtain a waiver or an amendment, or receive equity injection from its sponsor to avoid triggering an event of default. Although the current credit environment looks benign, there is risk that factors beyond management control could cause market conditions to weaken over the next 6-12 months, creating greater liquidity challenges for the company.

Road Infrastructure's EBITDA declined about 20% amid higher raw materials, freight and logistic costs in the first nine months of 2018. Debt/EBITDA, including Moody's analytical adjustments, is expected to be close to 9 times at the end of 2018, up from 6.7x at the end of 2017. Moody's expects recent price actions and acquired businesses will slightly improve earnings but debt leverage will remain high in the range of 7 to 8 times in 2019.

Other constraining factors to the rating are the company's relatively small size as measured by revenues around $600 million, limited product diversity, dependency on government funding and spending, and significant seasonality, reflected in its generation of roughly 70% of revenues in the second and third quarter. The company is exposed to cost inflation and tariffs on key raw material, such as acrylic resin, alkyd resin and TiO2.

The company's rating is supported by EBITDA margins in the mid-teens, broad regional manufacturing footprint, and the stability in demand since the majority of its revenues are generated from infrastructure maintenance spending. The company has also maintained a relatively stable customer base, however, a portion of its revenue is subject to municipal or state bidding processes. Although the December 2015 FAST Act authorized roughly $300 billion in infrastructure spending over five years, very little of that money has been spent so far. We expect a number of infrastructure suppliers starting to benefit from increase state and municipal spending on infrastructure projects. The company has no near-term debt maturities, other than a 1% annual principal amortization of the $487 million first lien term loan due 2023.

Moody's could consider upgrading the rating, if Road Infrastructure is able to improve its liquidity and financial flexibility by improving earnings, reducing adjusted debt leverage below 7.0x or amending its credit agreement.

Moody's could consider downgrading the rating, if the company fails to amend its term loan agreement and earnings and cash flow continue to deteriorate in 2019, or if leverage remains above 8.0x.

The principal methodology used in these ratings was Chemical Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Road Infrastructure Investment Holdings, Inc., headquartered in Greensboro, NC, is a producer of pavement and safety marking products primarily for the highway safety market. Road is the largest global provider of pavement markings and maintains the top market position in each of its key product lines; traffic paint, thermoplastics, preform thermoplastic, and raised pavement markers. The company operates 26 manufacturing facilities in five continents. Road's revenues were approximately $606 million for the twelve months ended September 30, 2018. On May 13, 2016, Olympus Partners purchased Road from Brazos Private Equity Partners LLC, and management retained a minority equity interest.

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.

Jiming Zou
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

Brian Oak
MD - Corporate Finance
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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