CPG International LLC -- Moody's upgrades CPG International LLC's (AZEK) CFR to Ba3; outlook stable

Rating Action: Moody's upgrades CPG International LLC's (AZEK) CFR to Ba3; outlook stableGlobal Credit Research - 13 Apr 2021Approximately $467 million of debt securities affectedNew York, April 13, 2021 -- Moody's Investors Service (Moody's) upgraded CPG International LLC's (a wholly owned subsidiary of The AZEK Company Inc.) (AZEK) Corporate Family Rating to Ba3 from B1 and Probability of Default Rating to Ba3-PD from B1-PD. Moody's also upgraded the rating on the company's first lien senior secured term loan to B1 from B2. The outlook is stable. AZEK's SGL-2 Speculative Grade Liquidity Rating was maintained.The upgrade of the Corporate Family Rating to Ba3 reflects AZEK's strong credit metrics, including debt to EBITDA of about 2.2x, and pro forma EBITDA to interest coverage of approximately 6.0x at December 31, 2020. Moody's expects these metrics will be maintained over the next 12 to 18 months. Industry conditions across the company's residential end markets are expected to be favorable and support AZEK's top line growth and operating results. Moody's also expects the company to maintain conservative financial policies in line with its leverage target, with respect to acquisition activity and shareholder friendly returns.The following rating actions were taken:Upgrades:..Issuer: CPG International LLC.... Probability of Default Rating, Upgraded to Ba3-PD from B1-PD.... Corporate Family Rating, Upgraded to Ba3 from B1....Senior Secured Bank Credit Facility, Upgraded to B1 (LGD4) from B2 (LGD4)Outlook Actions:..Issuer: CPG International LLC....Outlook, Remains StableRATINGS RATIONALEAZEK's Ba3 Corporate Family Rating reflects: 1) the company's solid position in the market for low maintenance building products; 2) the company's reliance on the residential repair and remodel end market for a majority of its revenue, which is more stable than new construction; 3) strong operating margin; 4) Moody's expectation of a conservative financial strategy, including modest leverage in line with the company's stated net debt leverage target of 2.0x to 3.0x; 5) governance consideration including the reduction in private equity ownership to 36%; and 6) good liquidity, supported by positive free cash flow and ample availability under revolving credit facility.On the other hand, the credit profile reflects: 1) the company's exposure to the cyclical residential and repair and remodeling end markets; 2) the significant competition in the low maintenance building products segment; 3) sensitivity of operating margin, cash flow and liquidity to changes in raw material costs; and 4) risks related to shareholder friendly actions given the private equity ownership.The stable outlook reflects Moody's expectation that AZEK will benefit from strong end market conditions in the residential sector, including new construction and repair and remodeling. Strong credit metrics, including low leverage, considerable interest coverage and free cash flow to debt ratios, strong operating margin and good liquidity also support the outlook.The SGL-2 Speculative Grade Liquidity rating reflects Moody's expectation that AZEK will maintain good liquidity over the next 12 to 15 months. Liquidity is supported by positive free cash flow and access to a $150 million ABL revolving credit facility expiring in 2026. The company has no debt maturities until 2024 when the term loan is due.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if AZEK expands its size and scale, demonstrates a track record of operating as a public company with conservative financial strategies and increases independent board representation. More specifically, if the company sustains adjusted debt to EBITDA below 3.0x and EBITA to interest coverage above 5.0x, and maintains good liquidity, while end markets conditions remain supportive the ratings could be upgraded.The ratings could be downgraded if revenue and earnings decline materially due to weakness in demand for key products. For example, if leverage approaches 4.5x, interest coverage declines below 4.0x, the company's financial strategies grow aggressive, or liquidity deteriorates the ratings could be downgraded.The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079.Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The AZEK Company Inc., headquartered in Chicago, Illinois, is a leading manufacturer of premium, low maintenance building products for residential (AZEK Building Products, TimberTech, Versatex and UltraLox) and commercial (Scranton Products and Vycom) markets in the U.S. and Canada. The company's product offerings include deck, trim, rail, pavers, partitions, lockers, and plastic sheet products. Since June 2020 AZEK is publicly traded. Ares Management and Ontario Teachers' Private Capital hold approximately 36% of the company's common stock. In the LTM period ended December 31, 2020, the company generated approximately $945 million 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. 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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.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. Natalia Gluschuk Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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