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LEB Holdings (USA), Inc. -- Moody's upgrades Barrette Outdoor Living's term loan rating to B2 following add-on

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Rating Action: Moody's upgrades Barrette Outdoor Living's term loan rating to B2 following add-onGlobal Credit Research - 24 Feb 2021New York, February 24, 2021 -- Moody's Investors Service ("Moody's") upgraded LEB Holdings (USA), Inc.'s (aka "Barrette Outdoor Living") senior secured first lien term loan to B2 from B3. In addition, the company affirmed the B2 Corporate Family Rating (CFR) and B2-PD Probability of Default Rating (PDR). The outlook remains stable.The upgrade follows the company's announced $125 million add-on to its senior secured first-lien term loan and reflects improved recovery for that class of debt given that it now comprises a higher share of the overall capital structure. Net proceeds of the add-on will be used for general corporate purposes including future acquisitions. The immediate impact of the transaction will result in an increase to pro forma adjusted debt/EBITDA to 5.2x from 3.8x as of September 30, 2020 and a decline to LTM EBIT interest coverage to 3.4x from 4.5x. Barrette Outdoor Living has experienced a surge in demand for its products in the second half of 2020 amid the coronavirus pandemic and the resulting need for families to spend more time at home, which will result in deleveraging through earnings growth. Moody's forecasts adjusted debt/EBITDA to decline to 4.3x by year-end 2021.Upgrades:..Issuer: LEB Holdings (USA), Inc.....Senior Secured Bank Credit Facility, Upgraded to B2 (LGD4) from B3 (LGD4)Affirmations:..Issuer: LEB Holdings (USA), Inc..... Corporate Family Rating, Affirmed B2.... Probability of Default Rating, Affirmed B2-PDOutlook Actions:..Issuer: LEB Holdings (USA), Inc.....Outlook, Remains StableRATINGS RATIONALEBarrette Outdoor Living's B2 corporate family rating reflects favorable fundamentals that support investment in home improvement, including the desire to increase home values. Moody's expects the overall building products sector to continue to benefit from a shift in consumers' discretionary spending to home improvement over the next twelve months as many employees continue to regularly work from home as a result of the coronavirus pandemic. Approximately 85% of Barrette's revenues are derived from the repair and remodel segment, where demand tends to be less volatile through market cycles as compared with new housing construction.These factors are counterbalanced by the company's reliance on The Home Depot and Lowe's, which collectively represent just under half of the company's revenues. While Barrette holds a dominant market position in Home Depot and Lowe's, these retailers are high-volume purchasers with strong bargaining power, which could negatively impact the company's sales volumes or margins. Moody's ratings also consider Barrette's exposure to new housing construction, where demand tends to be more volatile through cycles.Despite Moody's expectations of negative free cash flow over the next 12 to 18 months as a result of increased investment to support growth, Barrette's liquidity is expected to be good over the same time period. In addition to $42 million of cash on balance sheet at the end of 2020, the company had full availability under its $75 million asset-based revolver due in 2025.Moody's expects Barrette to maintain a measured approach to its financial policy and not aggressively increase leverage. The company is not expected to pay out a regular distribution to its equity sponsors, with excess capital likely reinvested back into the business or used for future tack-on acquisitions.The stable outlook reflects Moody's expectations of stable demand within the repair and remodel segment of housing as well as Barrette's maintenance of good liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded should adjusted debt to EBITDA be maintained below 5.0x and EBITA to interest coverage is maintained above 3.0x while maintaining good liquidity. A ratings upgrade would also be predicated on an increase in scale, while reducing the company's concentration with The Home Depot and Lowe's. Stable end market conditions would also be an important consideration for a ratings upgrade.Ratings could be downgraded if adjusted debt-to-EBITDA approaches 6.0x, interest coverage declines below 2.0x, the company's financial strategy becomes aggressive or liquidity deteriorates.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.LEB Holdings (USA), Inc., headquartered in Ohio, is a leading manufacturer and distributor of wood-alternative fence and railing, with a growing presence in decking and other outdoor living products. For the twelve months ended September 30, 2020, the company generated approximately $611 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. 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. Griselda Bisono 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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