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Arcosa, Inc. -- Moody's assigns Ba2 CFR to Arcosa; sr. notes rated Ba2; outlook stable

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Rating Action: Moody's assigns Ba2 CFR to Arcosa; sr. notes rated Ba2; outlook stableGlobal Credit Research - 29 Mar 2021New York, March 29, 2021 -- Moody's Investors Service (Moody's) assigned a first time Ba2 Corporate Family Rating and Ba2-PD Probability of Default Rating to Arcosa, Inc. (Arcosa), a diversified company focused on infrastructure-related materials and solutions, including construction, engineered steel structures, and transportation markets. Moody's also assigned a Ba2 rating to Arcosa's proposed $400 million senior unsecured notes maturing in 2029. Proceeds from the senior unsecured notes, will be used to repay any borrowings that may be outstanding under the 364-day facility at the closing of this offering, to fund the acquisition of StonePoint Materials and for general corporate purposes.Pro forma for this offering and the StonePoint Materials acquisition Moody's expects Arcosa's debt leverage by year end 2021 (inclusive of Moody's adjustments) to be 2.1x.Assignments:..Issuer: Arcosa, Inc..... Probability of Default Rating, Assigned Ba2-PD.... Corporate Family Rating, Assigned Ba2....Senior Unsecured Notes, Assigned Ba2 (LGD4).Speculative Grade Liquidity Rating, Assigned SGL-2Outlook Actions:..Issuer: Arcosa, Inc.....Outlook, Assigned StableRATINGS RATIONALEArcosa's Ba2 Corporate Family Rating reflects the company's attractive market position as a strong local provider of aggregates and other building materials products across Texas and Oklahoma and its solid position in manufacturing engineered steel structures. In addition, the rating is supported by Moody's expectation for solid secular growth drivers around infrastructure spending and sustainable energy that will benefit the company over the next few years.At the same time, the rating takes into consideration the company's acquisitive nature, evolving business model, and highly cyclical transportation division. In 2021, Moody's projects the transportation segment's revenue to decline by more than 30%.Governance characteristics considered for Arcosa include the company's conservative financial policy with respect to leverage and maintaining financial flexibility. Moody's believes the company will follow a disciplined financial approach, with the expectation of maintaining leverage levels at the company's target of 2.0-2.5x net debt to EBITDA (excluding Moody's adjustments).The stable outlook reflects Moody's expectation that over the next 12 to 18 months, Arcosa will grow its revenue and improve profitability organically and through M&A while maintaining moderate leverage and demonstrating a continued conservative approach to balance sheet management and liquidity.The Speculative Grade Liquidity Rating of SGL-2 reflects that Arcosa will maintain good liquidity. Pro forma for the issuance of $400 million in unsecured notes, Arcosa's liquidity position is supported by approximately $96 million of cash, a $500 million unsecured revolving credit facility, and Moody's expectation that the company will generate significant free cash flow in 2021, which will be used to de-lever its balance sheet.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if:» The company achieves larger revenue scale and improves its business profile in each segment while maintaining a conservative financial profile» Adjusted debt-to-EBITDA is below 2.5x for a sustained period of time» EBIT-to-interest expense is above 6.0x for a sustained period of time» Adjusted retained cash flow to net debt is above 25%» The company improves its liquidityThe rating could be downgraded if:» Adjusted debt-to-EBITDA is above 3.5x for a sustained period of time» EBIT-to-interest expense is below 5.0x for a sustained period of time» The company's liquidity and operating performance deterioratesThe principal methodology used in these ratings was Building Materials published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158917. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Dallas, Texas, Arcosa, Inc. (Arcosa) is a diversified publicly traded company focused on infrastructure related products and solutions with solid market positions in construction, engineered structures, and transportation markets. Arcosa became an independent, publicly traded company (listed on the New York exchange) on November 1, 2018, after it separated out of Trinity Industries. At the time of the separation, Arcosa consisted of some of Trinity's former construction products, energy equipment and transportation products businesses.For the year ended December 31, 2020, Arcosa generated approximately $1.94 billion in revenue.REGULATORY DISCLOSURESFor 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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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 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.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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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 www.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 www.moodys.com.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. Emile El Nems Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 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