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Rating Action:

Moody's rates Service Corporation International's proposed senior notes at Ba3, upgrades liquidity to SGL-1

10 Aug 2015

About $3 billion of rated debt.

New York, August 10, 2015 -- Moody's Investors Service (Moody's) assigned a Ba3 rating to Service Corporation International's (SCI) proposed $300 million senior unsecured notes, upgraded the Speculative Grade Liquidity Rating (SGL) to SGL-1 from SGL-2 and affirmed the Ba2 Corporate Family, Ba2-PD Probability of Default, Baa3 senior unsecured guaranteed and Ba3 senior unsecured ratings. The ratings outlook remains stable.

The proceeds of the proposed notes will be used to repay the $197 million of senior unsecured notes due 2016, reduce revolving credit facility loans outstanding and pay related premiums, fees and expenses. Ratings on the notes due 2016 will be withdrawn once they are repaid.

..Issuer: Service Corporation International

Upgrade:

.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

Assignments:

....Senior Unsecured Bond due 2024, Assigned Ba3 (LGD4)

Affirmations:

.... Corporate Family Rating, Affirmed Ba2

.... Probability of Default Rating, Affirmed Ba2-PD

....Senior Unsecured Bank Credit Facility, Affirmed Baa3 (LGD2)

....Senior Unsecured Bonds, Affirmed Ba3 (LGD4)

Outlook:

....Outlook, Remains Stable

RATINGS RATIONALE

The upgrade of the SGL to SGL-1 reflects reduced near term required loan amortization following the repayment of the notes due 2016 and Moody's expectations for at least $300 million of the company's $500 million revolving credit facility (matures 2018) will be available over the next 12 to 18 months. Moody's expectations for over $100 million of cash and about $200 million of free cash flow provide further support to the very good liquidity profile.

The Ba2 Corporate Family rating reflects Moody's expectation of modest 2% to 4% same-store revenue growth, debt to EBITDA in a range of about 3.7 to 4.0 times, peaking perhaps above 4 when SCI makes acquisitions, solid EBITA margins of over 20% and free cash flow to debt of about 6% to 8%. SCI's position as the leading death care provider in North America, supported by a broadly diversified portfolio of funeral service locations and cemetery properties, unique scale advantages, an over $9 billion revenue backlog and assets including real estate holdings, investment trusts and insurance contracts that provide tangible coverage of debt and other liabilities. Moody's anticipates free cash flow available to reduce debt will be limited by the need to invest in infrastructure leading to over $150 million of annual capital expenditures, the regular quarterly dividend of about $80 million a year and Moody's expectations that SCI will be a full cash tax payer by 2016. (All financial metrics reflect Moody's standard adjustments.)

The stable ratings outlook reflects Moody's expectations for limited debt reduction as most free cash flow will be applied toward acquisitions and shareholder returns. The ratings could be upgraded if profitable revenue growth can be maintained above 4% per year and Moody's expects sustained debt to EBITDA around 3 times and free cash flow to debt above 10%. Lower ratings are possible if Moody's expects 1) lower revenue growth; 2) profitability as measured by EBITA margins will remain below 17%; 3) increasingly shareholder friendly financial policies; or 4) less than good liquidity. If Moody's anticipates debt to EBITDA will be maintained above 4.5 times or free cash flow to debt will remain below 6%, lower ratings are possible.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

SCI is North America's largest provider of funeral, cemetery and cremation products and services. The company operates an industry-leading network of 1,550 funeral service locations and 467 cemeteries, which includes 262 funeral service/cemetery combination locations. Moody's anticipates revenue of about $3 billion in 2015.

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.

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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.

Edmond DeForest
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

Lenny J. Ajzenman
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 rates Service Corporation International's proposed senior notes at Ba3, upgrades liquidity to SGL-1
No Related Data.
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