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Rating Action: Moody's downgrades Manitowoc's CFR to B3, sr sec notes to B3; Outlook changed to stable
Global Credit Research - 27 Aug 2020
Approximately $300 million of rated notes affected
New York, August 27, 2020 -- Moody's Investors Service ("Moody's") downgraded the ratings of The Manitowoc Company, Inc. ("Manitowoc") including the company's corporate family rating (CFR) to B3 from B2, probability of default (PDR) to B3-PD from B2-PD, and rating on the company's $300 million senior secured second lien notes due 2026 to B3 from B2. The speculative grade liquidity rating remains SGL-3. The outlook has been changed to stable.
"Manitowoc's downgrade to B3 reflects our expectation that revenue and profitability will weaken beyond our previous expectations owing to considerable end market weakness. Moreover, financial leverage could double with debt-to-EBITDA exceeding 10 times at year end 2020, up from 4.9 times for the twelve months ended June 30, 2020, and this measure could remain elevated for an extended period", said Brian Silver, a Moody's Vice-President and lead analyst for Manitowoc. "However, we continue to expect Manitowoc's liquidity to remain adequate with no significant debt maturities until the notes mature in 2026".
Manitowoc's ratings reflect substantial concentration risk by operating solely in the crane segment. This exposes the company to highly cyclical end markets including construction and oil and gas, and makes it vulnerable to rapid and potentially significant earnings and working capital volatility. Demand for the company's products was already slowing prior to the coronavirus-related shutdowns. As result of the pandemic, Moody's now anticipates that revenues could decline by 30% in 2020, EBITA margin will approach zero, and free cash will likely be negative for the year. This erosion will result largely from pricing and volume pressure, and from lower fixed cost absorption. The company will achieve only modest relief from any efforts to improve operating efficiencies. Finally, the ratings also reflect the unanticipated CEO transition in August 2020 and the potential for a shift in strategy.
Despite these risks, Manitowoc's credit profile benefits from a well-established position as one of the world's leading providers of heavy duty cranes. The company also has adequate liquidity supported by $128 million of cash and $208 million of ABL availability at June 30, 2020 with no significant debt maturities until 2026. The company has global reach with over 50% of 2019 revenue generated outside of the US, and it benefits from a growing proportion of higher margin aftermarket sales as a percentage of total revenue. A material portion of aftermarket sales are generated on a recurring basis, which helps mitigate the impact from slowing demand for new cranes.
The stable rating outlook reflects Moody's expectation that Manitowoc's profitability will weaken considerably in 2020 and is likely to remain under pressure for the foreseeable future. However, liquidity will remain adequate supported by at least $200 million of liquidity at all times.
Manitowoc has moderate environmental risk. Like many manufacturers the company generates hazardous and non-hazardous waste in the normal course of operations and is subject to numerous environmental laws and regulations. Manitowoc also has relatively low social risk considerations. The company has no union workers in the US, but a majority of its European workers belong to various European trade unions. The company also has one trade union in China and one in India. Finally, Manitowoc has relatively low governance risk but has recently undergone a CEO transition. The company is also publicly traded on the NYSE and must adhere to its standards and does not pay any dividends.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although not likely in the near-term, ratings could be upgraded if Manitowoc can demonstrate continued earnings growth while diversifying its product offerings and expanding its customer base, lowering the volatility in revenue and earnings without materially increasing its risk profile through such a transition. Higher ratings could be supported by continuous positive free cash flow generation throughout industry cycles, allowing the company to keep ABL indebtedness at low levels. Sustaining credit metrics such as debt-to-EBITDA of less than 5 times and EBITA margins above 4% could also support a higher rating.
Ratings could be downgraded if total liquidity falls below $200 million, or if EBITA margins were to fall and be sustained below 0%. Ratings could also be lowered if debt-to-EBITDA rises above 8 times without an expectation it can rapidly deleverage.
..Issuer: Manitowoc Company, Inc. (The)
.... Corporate Family Rating, Downgraded to B3 from B2
.... Probability of Default Rating, Downgraded to B3-PD from B2-PD
....Senior Secured Notes, Downgraded to B3 (LGD4) from B2 (LGD4)
..Issuer: Manitowoc Company, Inc. (The)
....Outlook, Changed To Stable From Negative
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 Manitowoc Company, Inc. (NYSE: MTW), headquartered in Milwaukee, WI, was founded in 1902 and through its wholly-owned subsidiaries, designs, manufactures, markets, and supports comprehensive product lines of cranes. Crane types include mobile telescopic cranes, tower cranes, lattice-boom crawler cranes, and boom trucks under the Grove, Manitowoc, National Crane, Potain, Shuttlelift and Manitowoc Crane Care brand names. The company has three reportable segments based on region, including the Americas, Europe and Africa (EURAF) and Middle East and Asia Pacific (MEAP). Manitowoc generated revenue of approximately $1.6 billion for the twelve months ended June 30, 2020.
For 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 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_1133569.
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.
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.
Brian Silver, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Robert Jankowitz MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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