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Masco Corporation -- Moody's upgrades Masco Corp.'s senior unsecured rating to Baa2; outlook stable

·14 min read

Rating Action: Moody's upgrades Masco Corp.'s senior unsecured rating to Baa2; outlook stable

Global Credit Research - 21 Dec 2020

New York, December 21, 2020 -- Moody's Investors Service ("Moody's") upgraded Masco Corporation's ("Masco") senior unsecured rating to Baa2 from Baa3. The outlook is stable.

The upgrade of Masco's rating to Baa2 reflects Moody's expectation that Masco will continue to follow conservative financial policies, benefit from strong fundamentals in repair and remodeling activity and maintain a robust liquidity profile. Moreover, Moody's believes Masco will be able to sustain its current performance, since its business profile and operations have significantly improved over the years.

"Masco's focus only on paints and plumbing is propitious as each is showing greater resiliency than previously expected in the current economic downturn," said Peter Doyle, a Moody's VP-Senior Analyst.

The following ratings/assessments are affected by today's action:

Upgrades:

..Issuer: Masco Corporation

....Senior Unsecured Notes, Upgraded to Baa2 from Baa3

Outlook Actions:

..Issuer: Masco Corporation

....Outlook, Remains Stable

RATINGS RATIONALE

Masco's Baa2 senior unsecured rating reflects Moody's expectation of ongoing strong operating performance, with an EBITA margin projected to remain near 17.5% over the next two years. Higher volumes, due to end-market growth and resulting operating leverage, and modest price increases will contribute to continued profitability, offsetting potentially rising costs for commodities, such as titanium dioxide (for paints), zinc, copper, and resins.

Moody's projects debt-to-LTM EBITDA remaining below 2.5x through 2022 (2.3x at Q3 2020), and free cash flow-to-debt in excess of 15% over the same time period. Moody's projects revenue will grow to $7.35 billion for 2022 from about $7.0 billion for LTM Q3 2020. Moody's also calculates interest coverage, measured as EBITA-to-interest expense, will be around 7.7x in late 2022.

Moody's believes that the fundamentals for the residential repair and remodeling activity, the main demand driver for Masco's products, will remain favorable and drive growth. Also, Moody's has a positive outlook for the US Homebuilding sector, which is another key revenue driver.

Another credit strength is Masco's robust liquidity profile, characterized by free cash flow in excess of $500 million in each year through 2022, $1.3 billion of cash at September 30, 2020 and full access to a $1.0 billion revolving credit facility.

However, Moody's believe that significant operating margin expansion beyond the rating agencies projections will be hard to achieve. Masco has significant distribution channel concentration to The Home Depot, which accounted for 37% of Masco's 2019 revenue. Also, Masco faces stiff competition for its products, which makes material price growth difficult. Further, Moody's expects Masco will continue to repurchase shares. In the last twelve months ended September 30, 2020, Masco has spent about $1.2 billion for share repurchases. This is capital that could otherwise be deployed towards enhancing liquidity for potential bolt-on acquisitions or for debt reduction.

The stable outlook reflects Moody's expectation that Masco will continue to perform well, generate solid operating margin and cash flow, and maintain leverage below 3.0x. Substantial liquidity and conservative financial policies further support the stable outlook.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade

(All ratios incorporate Moody's standard adjustments)

» Debt-to-LTM EBITDA approaching 1.75x

» EBITA margin is maintained near 15.0%

» Free cash flow-to-debt is maintained above 15%

» Preservation of its robust liquidity

» Maintain conservative financial policies

Factors that could lead to a downgrade

(All ratios incorporate Moody's standard adjustments)

» Debt-to-LTM EBITDA is sustained above 3.0x

» EBITA margin trending towards 12.5%

» The company's liquidity profile deteriorates

Masco Corporation, headquartered in Livonia, Michigan, is among the largest North American manufacturers of a number of home improvement and building products, including faucets, architectural coatings, and lighting.

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.

REGULATORY DISCLOSURES

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 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.

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. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dean Diaz Associate Managing Director 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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