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Rating Action:

Moody's upgrades Atkore Inc.'s CFR to Ba1; outlook stable

25 May 2022

New York, May 25, 2022 -- Moody's Investors Service ("Moody's") upgraded Atkore Inc.'s (Atkore) corporate family rating to Ba1 from Ba2, its probability of default rating to Ba1-PD from Ba2-PD and the rating on its $400 million senior unsecured notes to Ba2 from Ba3. At the same time, Moody's upgraded the rating on the senior secured term loan issued by Atkore International, Inc. to Baa3 from Ba1. The ratings outlook was changed to stable from positive.

"The upgrade of Atkore's ratings reflects the significant improvement in the company's operating performance and credit metrics and the likelihood they will be sustained at a stronger level than the past due to its strengthened competitive position and focus on margin and productivity improvements, as well as its relatively conservative financial policies," said Michael Corelli, Moody's Senior Vice President and lead analyst for Atkore Inc.

Upgrades:

..Issuer: Atkore Inc.

....Corporate Family Rating, Upgraded to Ba1 from Ba2

....Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD

....GTD Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 (LGD5) from Ba3 (LGD5)

..Issuer: Atkore International, Inc.

....Senior Secured First Lien Term Loan B, Upgraded to Baa3 (LGD3) from Ba1 (LGD3)

Outlook Actions:

..Issuer: Atkore Inc.

....Outlook, Changed To Stable From Positive

..Issuer: Atkore International, Inc.

....Outlook, Changed To Stable From Positive

RATINGS RATIONALE

Atkore's Ba1 corporate family rating is supported by its low leverage, robust interest coverage, high profit margins, large market share in key products, attractive position in certain end markets, its focus on core product categories, pricing discipline and operational efficiencies, and its very good liquidity profile. The rating also reflects Atkore's moderate scale and limited diversity versus higher rated companies in the manufacturing sector and its reliance on non-residential 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, its limited product differentiation, and its acquisitive history and plans to consistently grow through acquisitions in the future.

Atkore's operating performance has materially strengthened over the past 18 months and is expected to remain robust in the near-term due to significantly improved product pricing driven by the company's ability to meet demand despite raw material and product shortages, particularly in PVC electrical conduit and fittings and to a lesser extent metal electrical conduit and fittings. This has enabled the company to substantially widen the spreads between the cost of its raw materials and its finished products prices, while also benefitting from the contributions from acquired companies, productivity improvements and continued high demand in key end markets such as residential construction, warehouses and data centers. As a result, Atkore generated adjusted EBITDA of $900 million in fiscal 2021 (ended September 2021) and $635 million in the first half of fiscal 2022 versus about $340 million in the full fiscal year of 2020. We anticipate these positive trends will continue in the second half of the fiscal year and the company will produce full year adjusted EBITDA in the range of $1.2 -  $1.3 billion, which is about 4x as much as the amount generated in fiscal years 2019-2020.

The strong operating performance along with effective working capital management enabled the company to generate more than $500 million in free cash flow in fiscal 2021 and to raise its cash balance to $576 million while repaying $37 million of debt, repurchasing $135 million of its common stock and completing $43 million of acquisitions. We expect fiscal 2022 free cash flow to be even stronger and anticipate the company will continue its balanced capital allocation while maintaining relatively conservative financial policies. The company has repurchased about $261 million of its stock and completed $36 million of acquisitions in 1H22 and has indicated these activities will continue as part of its commitment to spend $1 billion of cash on capital investments, acquisitions and share repurchases over the next 2-3 fiscal years.

Atkore's substantially improved operating performance and its debt paydowns over the prior few years has resulted in materially stronger credit metrics. Atkore's adjusted leverage ratio (debt/EBITDA) declined to 0.7x in March 2022 from 2.6x in September 2020 while its interest coverage (EBITA/Interest) rose to 34.9x from 6.6x. We expect these metrics to strengthen further in the second half of fiscal 2022 as the company continues to benefit from the same dynamics as the first half of the year. Its operating performance is expected to materially weaken in fiscal 2023 as raw material and product availability improves, product pricing declines and higher interest rates and inflationary cost pressures weigh on construction spending. However, its credit metrics are likely to remain strong for its Ba1 corporate family rating, but further upside potential will be constrained by its moderate scale and somewhat limited end market diversity.

Atkore's speculative grade liquidity rating of SGL-1 reflects its very good liquidity profile and its consistent free cash generation. The company had $390 million of cash and $313 million of borrowing availability on its $325 million asset based revolving credit facility as of March 2022. Atkore had $12 million of letters of credit issued and no outstanding borrowings on the revolver which has historically been used for seasonal and cyclical working capital support and to fund acquisitions, but is unlikely to be used in the near term considering the company's sizeable cash balance and strong free cash flow. The ABL matures in May 2026.

The Baa3 rating assigned to the first lien term loan is one notch above Atkore's Ba1 corporate family rating since it benefits from a first priority lien on the tangible and intangible assets not securing the ABL revolver and a second lien on the ABL collateral. It is also supported by the loss absorbing buffer provided by the unsecured notes, which is rated Ba2 due to its junior ranking position in relation to the term loan and the ABL.

Atkore's stable ratings outlook reflects Moody's expectation that its operating results will remain robust in 2H22 before materially weakening in fiscal 2023, but that its credit metrics will continue to support its rating.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Atkore's moderate scale and somewhat limited end market diversification versus other higher rated companies in the manufacturing sector limit its upside ratings potential. However, the company's rating could be upgraded if its leverage ratio (Debt/EBITDA) is sustained at less than 2.0x, EBITA margins above 16% and it maintains very good liquidity.

Atkore's rating could be lowered if Debt/EBITDA exceeds 3.25x or EBITA margins fall below 12% on a sustained basis. A material contraction in liquidity could also result in a downgrade.

Atkore Inc., headquartered in Harvey, Illinois is a manufacturer of Electrical products primarily for the non-residential construction and renovation markets and to a lesser extent the residential construction market, and Safety & Infrastructure solutions for the construction and industrial markets. These products include steel and PVC electrical conduit and fittings, armored and metal-clad cable and metal framing and support structures such as cable trays, ladders and wire baskets, as well as galvanized mechanical tubes. The company operated 42 manufacturing facilities as of September 30, 2021 and has two reportable segments: Electrical (about 75% of sales) and Safety & Infrastructure Solutions (25%). Atkore's revenues for the trailing twelve months ended March 25, 2022 were approximately $3.6 billion. Atkore International, Inc. (Atkore) is a wholly owned subsidiary of Atkore International Holdings Inc., which in turn is 100% owned by Atkore Inc.

The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at  https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Michael Corelli, CFA
Senior Vice President
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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