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Louisiana-Pacific Corporation -- Moody's changes outlook on Louisiana-Pacific to positive; affirms Ba1 rating

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Rating Action: Moody's changes outlook on Louisiana-Pacific to positive; affirms Ba1 ratingGlobal Credit Research - 22 Feb 2021Approximately $350 million of rated debtToronto, February 22, 2021 -- Moody's Investors Service, ("Moody's") changed Louisiana-Pacific Corporation's (LP) outlook to positive from stable and affirmed the company's Ba1 corporate family rating (CFR), Ba1-PD probability of default rating (PDR) and Ba2 senior unsecured bond rating. The speculative grade liquidity rating remains unchanged at SGL-1." The positive outlook reflects LP's strong credit metrics and the increasing proportion of cash flow from the more stable siding business versus the more volatile oriented strand board segment" said Ed Sustar, Senior Vice President with Moody's.Affirmations:..Issuer: Louisiana-Pacific Corporation.... Corporate Family Rating, Affirmed Ba1.... Probability of Default Rating, Affirmed Ba1-PD....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 to (LGD5) from (LGD4)Outlook Actions:..Issuer: Louisiana-Pacific Corporation....Outlook, Changed To Positive From StableRATINGS RATIONALELP benefits from 1) its growing North American market position in engineered wood siding (siding), which is the company's largest business segment (on a normalized basis) and who's earnings currently cover all of the company's sustaining capex, dividends and interest costs; 2) good market positions in oriented strand board (OSB) and engineered wood products (EWP); 3) strong liquidity and 4) normalized leverage (adjusted debt to EBITDA) of about 1.1x using 7 year average EBITDA and current debt levels. We expect the company's leverage will remain strong (below 1x) over the next 12 to 18 months (from 0.8x in LTM Q3 2020) as average OSB prices remain strong and LP's more stable siding business continues to grow. LP is constrained by 1) the highly competitive nature of the building solutions industry; 2) the volatility of its OSB business (which represented about 39% of LTM September 2020 revenue); and 3) the company's almost exclusive focus on the home construction and renovation / remodeling market. The pricing of OSB, which is currently at record highs, remains among the most volatile commodity grades in the paper and forest products industry.LP's $350 million senior unsecured notes due 2024 are rated Ba2, one notch below the company's corporate family rating, reflecting the priority of the notes behind the company's $550 million secured revolving credit facility (unrated).LP has strong liquidity (SGL-1) with about $1.4 billion of liquidity and no current debt. LP had a cash balance of $535 million as of December 2020, full availability on a $550 million committed revolving credit facility ($200 million matures in September 2023 and the remaining matures in June 2024), and our estimate that LP will generate about $350 million of free cash flow in the next four quarters. We expect LP to remain in compliance with its financial covenants and the company's next significant funded debt maturity is not until the bonds mature in 2024.The positive outlook is based on our view that LP will be able to maintain strong liquidity and robust credit metrics as it increases its position in the growing siding business with the conversion of its Houlton, Maine facility to SmartSide and the restart of its Peace Valley, British Columbia OSB mill. LP's credit metrics will benefit from strong wood product demand and prices as housing starts and renovation/remodeling activity remain solid. Based on the robust start to the year, we expect average OSB prices to be 10% higher in 2021 compared to 2020 average prices.All of LP's products are designed to last a long time and preserve the carbon captured from growing trees, providing an environmental benefit. However, as a manufacturing company, LP 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.LP is a public company with transparent reporting and well-established governance structures. The company's leverage is currently strong for its rating; however, the company does not have a publicly stated leverage target.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that could lead to an upgrade» Conservative financial policies and an unsecured capital structure, in-line with an investment grade rating» Continued growth and strong operating performance in the company's engineered wood siding business» Maintaining strong leverage (RCF minus capex /TD) above 12% and debt to EBITDA below 3x (64% and 0.8x at LTM September 2020, adjusted per Moody's standard definitions) on a sustainable basis.» The company maintains strong liquidity (including sustaining positive free cash flow generation)Factors that could lead to a downgrade» The company's liquidity deteriorates; or» If we expect debt to EBITDA to remain above 4x (0.8x as of LTM September 2020) for a sustained period.The principal methodology used in these ratings 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 Nashville, Tennessee, Louisiana-Pacific Corporation is a leading manufacturer and distributor of wood-based building materials with operations in US, Canada, Chile and Brazil.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. 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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