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Boise Cascade Company -- Moody's rates Boise Cascade's new senior unsecured notes Ba2; outlook stable

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Rating Action: Moody's rates Boise Cascade's new senior unsecured notes Ba2; outlook stable

Global Credit Research - 13 Jul 2020

Approximately $400 million of new rated debt

Toronto, July 13, 2020 -- Moody's Investors Service ("Moody's") assigned a Ba2 rating to Boise Cascade Company's ("Boise Cascade") proposed $400 million senior unsecured notes due 2030. Boise Cascade intends to use the proceeds of this offering to refinance the company's $350 million 5.625% senior unsecured notes due 2024 and $45 million term loan due 2026. The company's Ba1 corporate family rating (CFR), Ba1-PD probability of default rating (PDR), Ba2 senior unsecured debt rating and SGL-1 speculative grade liquidity rating remain unchanged. The rating outlook remains stable.

"The refinancing is leverage neutral and Boise Cascade's existing ratings remain unchanged, reflecting our expectations that company's leverage (adjusted Debt to EBITDA) will be around 2.5x in 2020", said Ed Sustar, Senior Vice President with Moody's.

Assignments:

..Issuer: Boise Cascade Company

....Senior Unsecured Regular Bond/Debenture, Assigned Ba2 (LGD5)

RATINGS RATIONALE

Boise Cascade (Ba1 CFR) benefits from its (1) good market positions in North American wood products manufacturing and building products distribution (a leading US producer of plywood and engineered wood products and wholesale building materials distributor); (2) strong liquidity; (3) good vertical integration; and (4) expectations that the company's adjusted leverage will remain strong at about 2.5x in 2020 (2.2x March 2020) as weaker demand due to the coronavirus outbreak is partially offset by slightly higher wood product prices. Boise Cascade is constrained: (1) by its concentration in the cyclical US home construction and repair/remodeling end markets; (2) volatile wood product prices; (3) lower near-term product demand as a result of the coronavirus outbreak; and (4) low operating margins. In addition, we expect management will continue to focus on acquisition and expansion opportunities to further grow its more stable, but lower margin, distribution business, which currently represents about 55% of the company's earnings.

The spread of the coronavirus outbreak, weak global economic outlook, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The paper and forest products sector has been affected by the shock given its sensitivity to consumer demand and sentiment. However, in most jurisdictions, the paper and forest products industry has been deemed as an essential industry. This designation allows Boise Cascade to continue to supply products used in infrastructure and construction projects. Nonetheless, the impact on Boise Cascade's credit profile could leave it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Boise Cascade remains vulnerable to the outbreak as it continues to spread. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

The new unsecured notes are rated Ba2, one notch below the CFR due to subordination to the company's senior secured debt, in accordance with Moody's Loss Given Default for Speculative-Grade Companies methodology.

Boise Cascade has strong liquidity (SGL-1) with about $600 million of liquidity sources and no near term mandatory debt repayments. Sources of liquidity consist of $215 million of cash (as of March 2020), revolver availability of $345 million (on a $350 million asset-based revolving credit facility that matures in March 2025) and Moody's projected cash generation of about $30 million over the next four quarters (after regular dividends). Covenant headroom is strong, and we do not expect any breaches in the near term.

The stable outlook reflects our expectation that Boise Cascade will maintain good operating performance and strong liquidity over the next 12-18 months. We expect the company's operating earnings will remain relatively flat over the next 12 months as the benefit from operational improvements, the ramp up of acquired distribution centers and the flow-through of rising wood product prices (given recent capacity curtailments) will be offset by lower sale volumes because of temporary industrial shut downs and weaker economic activity due to the coronavirus pandemic.

As a manufacturing company, Boise Cascade is moderately exposed to environmental risks, such as air and water emissions, and social risks, such as labor relations and health and safety issues. The company has established expertise in complying with these risks, and has incorporated procedures to address them in their operational planning and business models. Governance risk is low, as Boise Cascade is a public company with clear and transparent reporting. The company may direct some of its free cash flow to acquisitions or dividends as its leverage is currently below its reported gross debt-to-EBITDA target of 2.5x.

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

Factors that could lead to an upgrade:

» Increased diversification away from the cyclical US home construction and repair/remodeling end markets

» An unsecured capital structure

» Adjusted debt/EBITDA is sustained below 3x (2.2x LTM as of March 2020) and (RCF-Capex)/adjusted total debt is maintained above 12% (11% LTM as of March 2020) based on our forward view of financial performance

» The company maintains strong liquidity and conservative financial policies

Factors that could lead to a downgrade:

» Significant deterioration in the company's liquidity and operating performance

» Changes in financial management policies that would materially pressure the company's balance sheet

» Adjusted debt/EBITDA exceeds 4x (2.2x LTM as of March 2020) or (RCF-Capex)/adjusted debt approaches 5% (11% LTM as of March 2020) based on our forward opinion of sustained metrics

The principal methodology used in this rating was Paper and Forest Products Industry published in October 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1105007. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Boise, Idaho, Boise Cascade manufactures engineered wood products and plywood and is a wholesale distributor of a broad line of building materials, including siding, composite decking and about 60% of the wood products that it manufactures. The company generated 2019 sales of $4.6 billion.

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://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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.

This rating is 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_1133569.

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.

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.

Ed Sustar Senior Vice President Corporate Finance Group Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Donald S. Carter, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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