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Rating Action: Moody's affirms GMS' Ba3 CFR; upgrades secured debt rating to Ba3, assigns B2 to unsecured notes; upgrades liquidity rating to SGL-1; outlook stableGlobal Credit Research - 12 Apr 2021New York, April 12, 2021 -- Moody's Investors Service (Moody's) affirmed GYP Holdings III Corp.'s (operating as GMS Inc.) Ba3 Corporate Family Rating (CFR) and Ba3-PD Probability of Default Rating. Moody's also upgraded the senior secured term loan to Ba3 from B1 and assigned a B2 rating to the company's proposed issuance of senior unsecured notes. The outlook is stable. In addition, Moody's upgraded GMS' speculative grade liquidity rating to SGL-1 from SGL-2.Moody's views the proposed notes issuance as credit positive since proceeds from will be used to redeem a similar amount of the company's senior secured term loan maturing 2025. This leverage neutral transaction reduces refinancing risk in mid-2025. Cash on hand will be used to pay related fees and expenses. Interest expense is increasing modestly due to the higher coupon on the notes relative to the term loan, partially offset by the potential repricing of the term loan. However, higher net interest payments are not material comparative to GMS' revenue of about $3.1 billion for LTM Q3 2021.The upgrade of GMS' senior secured term loan to Ba3 from B1 results from Moody's expectation of higher recovery values for the term loan, since this debt is being reduced by slightly more than one-third. In addition, the term loan benefits now from the seniority it has relative to the unsecured notes.The B2 rating assigned to GMS' senior unsecured notes due 2029, two notches below the Corporate Family Rating, results from their subordination to the company's secured debt.The change in GMS' speculative liquidity rating to SGL-1 from SGL-2 reflects Moody's expectation that GMS will generate consistent free cash flow in excess of $120 million in fiscal years 2022 and 2023 ending April 30. Significant cash on hand, ample revolver availability and no near-term maturities contribute to GMS' very good liquidity profile as well.The following ratings are affected by today's action:Upgrades:..Issuer: GYP Holdings III Corp.....Gtd Senior Secured 1st Lien Term Loan, Upgraded to Ba3 (LGD3) from B1 (LGD4).... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2Assignments:..Issuer: GYP Holdings III Corp.....Senior Unsecured Regular Bond/Debenture, Assigned B2 (LGD5)Affirmations:..Issuer: GYP Holdings III Corp..... Probability of Default Rating, Affirmed Ba3-PD.... Corporate Family Rating, Affirmed Ba3Outlook Actions:..Issuer: GYP Holdings III Corp.....Outlook, Remains StableRATINGS RATIONALEGMS' Ba3 CFR reflects Moody's expectation that the company will benefit from expansion in new home construction and residential repair and remodeling activity, as well as increasing demand for wallboard that accounts for about 40% of GMS' revenue. Moody's projects that GMS will maintain solid credit metrics such as adjusted debt-to-LTM EBITDA remaining below 3.5x over the next two years and interest coverage, measured as EBITA-to-interest-expense, will approximate 4.5x in fiscal year 2022. Moody's also forecasts good operating performance with adjusted EBITDA margin sustained near 10%. However, GMS faces strong competition in all of its markets from other distributors and its product mix is reliant on commodity-like products. These factors make it difficult for GMS to expand margins and to significantly grow market share.The stable outlook reflects Moody's expectation that GMS will follow conservative financial policies such as maintaining leverage below 3.5x. Very good liquidity and positive end market dynamics further support the stable outlook.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that could lead to an upgrade:» Debt-to-LTM EBITDA sustained near 3.0x» Preservation of good liquidity» Maintenance of conservative financial policiesFactors that could lead to a downgrade:» Debt-to-LTM EBITDA maintained above 4.0x» EBITDA margin contracting towards 8.5%» Deterioration in liquidity profileThe principal methodology used in these ratings was Distribution & Supply Chain Services Industry published in June 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121974. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.GMS Inc., headquartered in Tucker, Georgia, is a North American distributor of wallboard, steel framing, ceiling systems and other related building products.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.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. Peter Doyle 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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