Rating Action: Moody's affirms LSF10 Edilians' B2 CFR; stable outlookGlobal Credit Research - 16 Feb 2021Frankfurt am Main, February 16, 2021 -- Moody's Investors Service ("Moody's") has today affirmed LSF10 Edilians Investments S.a r.l.'s ("Edilians") corporate family rating (CFR) and Probability of Default rating at B2 and B2-PD, respectively. Concurrently Moody's has assigned a B2 instruments' ratings on its new E660 million Senior Secured 1st Lien Term Loan B3 maturing in 2028 and its new E90 million Senior Secured 1st Lien Revolving Credit Facility (RCF) maturing in 2027. The outlook is stable. The proceeds will be used to repay the existing E531 million Senior Secured 1st Lien Term Loan B2 and its E15 million outstanding Senior Secured Second Lien Term Loan as well as for funding a E111 million first-time dividend distribution. Upon completion of the envisaged transaction, Moody's will withdraw the B2 rating on the existing senior secured facilities.RATINGS RATIONALEThe building materials industry, notably the renovation segment, is benefitting from the V-shaped recovery of the construction activities in Europe. In this context Edilians achieved a FY 2020 sales and EBITDA earnings growth of around 4% and 5% respectively. On the back of strong trading, resilient margins and high cash flow generation, the company partially repaid its Senior Secured Second Lien Term Loan and reduced its financial leverage down to 4.9x on a Moody's adjusted basis by year-end 2020. So that in spite of the higher amount of gross debt to be raised under this transaction, Edilians' credit metrics will remain within their current rating guidance over the next 12 to 18 months, supported by the expected sustained solid operating performance and financial discipline.Edilians' credit profile further benefits from a leading and historically stable market position in the French roofing market, protected by high barriers to entry and supporting its best in-class profitability, with a track record of resilient performance through economic crisis.The B2 rating also factors in Edilians' credit challenges arising from a fragile economic recovery, its concentration in the French residential construction market, its small size compared with international peers in a cyclical and capital-intensive industry and rising substitution risk from alternative roofing products, especially in the new-build segment.The stable outlook reflects Moody's view that Edilians' solid earnings will remain broadly stable resulting in a leverage below 6x over the 12 to 18 months. Our stable outlook also incorporates our expectation of no aggressively financed acquisitions and unchanged resilient trading conditions of the building materials industry in France.LIQUIDITY ANALYSISEdilians' liquidity is good backed by a resilient cash flow generation, around E19 million cash on balance sheet pro-forma for the refinancing and E90 million available under its Senior Secured 1st lien RCF (undrawn).The above sources will adequately cover maintenance capex and debt interest payments. For funding short-term working capital swings, Edilians has as well access to factoring lines.Our liquidity assessment also considers the covenant lite structure of the bank debt with a springing covenant on the revolving credit facility, to be only tested if the revolver is drawn more than 40% and with a test level of maximum 8.85x net leverage. We expect covenant headroom to remain adequate over the next 12 to 18 months.STRUCTURAL CONSIDERATIONSEdilians' capital structure includes its new E660 million Senior Secured 1st Lien Term Loan B3 and its E90 million Senior Secured 1st Lien Revolving Credit Facility, guaranteed by material subsidiaries representing at least 80% of consolidated EBITDA.The security package includes share pledges over the shares of LSF10 Edilians Investments S.a r.l. and operating subsidiaries accounting for at least 80% of group consolidated EBITDA. Both the Senior Secured 1st Lien Term Loan B3 and the Senior Secured 1st Lien Revolving Credit Facility rank pari passu.We assume a standard recovery rate of 50%, which reflects the covenant lite nature of the loan documentation.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS- Upward rating pressure could arise if Edilians builds a track record of keeping Debt/EBITDA sustainably below 5.0x and FCF/debt would increase to double digit in percentage terms. A higher rating would also require maintaining operating margins at the historically high levels.- Negative pressure on the rating would arise if Debt/EBITDA would increase sustainably above 6.0x, operating margins would decline steeply and FCF generation would turn negative, leading to a deterioration of Edilians' liquidity profile.ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSEdilians' ratings incorporate its private equity ownership and the traditionally associated more aggressive financial policy to that, which is tolerant of high leverage, debt-funded M&A and recapitalisation measures.Despite the economic activity disruption caused by Covid-19, Edilians operating performance remains solid supported by the resilient nature of the building materials industry, notably the renovation market, its leading market position and best in class profitability. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Building Materials published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158917. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.CORPORATE PROFILEHeadquartered in Dardilly France, Edilians is a leading manufacturer of clay roof tiles in the country. Business operations are organized in two divisions: premium clay roof tiles (90% of revenues) and adjacencies (10%). The company generated in 2020 revenues of E323 million and a company-adjusted EBITDA of E131 million.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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