U.S. markets close in 6 hours 8 minutes
  • S&P 500

    3,788.11
    +19.86 (+0.53%)
     
  • Dow 30

    30,933.88
    +119.62 (+0.39%)
     
  • Nasdaq

    13,099.17
    +100.67 (+0.77%)
     
  • Russell 2000

    2,146.77
    +23.57 (+1.11%)
     
  • Crude Oil

    52.79
    +0.43 (+0.82%)
     
  • Gold

    1,836.10
    +6.20 (+0.34%)
     
  • Silver

    25.20
    +0.33 (+1.34%)
     
  • EUR/USD

    1.2129
    +0.0045 (+0.38%)
     
  • 10-Yr Bond

    1.1110
    +0.0140 (+1.28%)
     
  • GBP/USD

    1.3611
    +0.0024 (+0.18%)
     
  • USD/JPY

    103.9950
    +0.3080 (+0.30%)
     
  • BTC-USD

    37,149.99
    +708.25 (+1.94%)
     
  • CMC Crypto 200

    736.26
    +21.07 (+2.95%)
     
  • FTSE 100

    6,714.06
    -6.59 (-0.10%)
     
  • Nikkei 225

    28,633.46
    +391.25 (+1.39%)
     

Robertshaw US Holding Corp (NEW) -- Moody's downgrades Robertshaw US Holding Corp.'s (NEW) ratings, with first-lien and CFR to Caa1 and second-lien to Caa3; outlook stable

·15 min read

Rating Action: Moody's downgrades Robertshaw US Holding Corp.'s (NEW) ratings, with first-lien and CFR to Caa1 and second-lien to Caa3; outlook stable

Global Credit Research - 21 Dec 2020

New York, December 21, 2020 -- Moody's Investors Service (Moody's) downgraded Robertshaw US Holding Corp.'s (NEW) (Robertshaw) corporate family rating (CFR) to Caa1 from B3, the Probability of Default Rating to Caa1-PD from B3-PD, the first-lien senior secured term loan rating to Caa1 from B3 and the second-lien senior secured term loan rating to Caa3 from Caa2. The rating outlook is stable.

The downgrades reflect expectations for weak near-term results following continued underperformance relative to Moody's expectations, exacerbated by a protracted recovery in key credit metrics from trough demand impacts in the first half of 2020 as a result of a pullback in appliance spending. Moody's adjusted debt-to-EBITDA will eclipse 9x for fiscal year end 2021 (March 2021) and will remain high even with modest improvement during calendar 2021. Lower volumes in the appliance end markets, approximately two-thirds of the company's revenues, with significant weakness in commercial appliances hit hard by restaurant capacity restrictions, will take time to rebound.

RATINGS RATIONALE

The ratings reflect limited scale with a niche focus, exposure to cyclical consumer spending on appliances, the ongoing need for productivity improvements to help offset customer pricing pressure and expected leverage near 9x. Despite cost saving initiatives to improve the fixed-to-variable cost structure, margins have yet to demonstrate consistent expansion, hindered more recently by weaker demand for customers' products. Free cash flow has been fairly solid over the last couple of years, boosting the cash position but has been insufficient to allow meaningful repayment of debt. With moderate earnings growth, Moody's adjusted debt-to-EBITDA is projected to fall to the mid-8x range by fiscal year end 2022 (March 2022).

The ratings are supported by Robertshaw's leading market share positions, end markets that have traditionally grown in-line with normalized US GDP and longstanding relationships with a blue-chip customer base. An aging installed base (i.e. pent up replacement demand) of residential appliances and commercial HVAC systems, as well as largely resilient home renovation spending and accelerating opportunities in transportation, support longer-term growth prospects. An increasingly more variable cost structure and modest capital expenditure needs should promote positive and consistent free cash flow generation.

The rating outlook is stable, reflecting Moody's expectations that revenue growth will approach normalized US GDP expansion with margins resuming a positive trajectory from a low level, boosted by modestly higher volumes, benefits from cost-saving initiatives and planned annual price increases. Free cash flow will be modest but positive, enabling liquidity to remain sufficient to manage through the potential for extended macroeconomic uncertainty.

Liquidity is adequate supported by Moody's expectation for the company to maintain $50 million - $60 million of cash (over $60 million at September 30, 2020) and generate free cash flow of at least $10 million annually over the next couple of years. Robertshaw has an unrated E60 million term loan (expected to be approximately E49 million at December 31, 2020) due December 2023, but otherwise no material debt maturities. The company has an unrated, undrawn $50 million asset-based lending (ABL) facility, set to expire in 2023. This is modest relative to interest expense and potential working capital fluctuations. The ABL is subject to a springing covenant - minimum fixed charge coverage ratio of 1.0x - tested only if excess availability is less than 10% of the facility. The first and second lien term loans do not have financial maintenance covenants. There are no near-term debt maturities and roughly $5 million of annual amortization payments required on the first-lien term loan.

Moody's expects financial policies to be aggressive under private equity ownership including the potential for debt-funded acquisitions and shareholder distributions. Debt-to-EBITDA remains high following One Rock Capital's buyout of the company in early 2018, creating a heavy interest burden and increased vulnerability to financial stress when economic conditions deteriorate as seen in calendar 2020. Further, Moody's expects the modest free cash flow to be focused towards growth investments versus debt repayment, therefore, de-leveraging over the next 18 months will be driven largely by earnings improvement, with earnings momentum building in calendar 2021.

Moody's took the following rating actions on Robertshaw US Holding Corp. (NEW):

- Corporate Family Rating, downgraded to Caa1 from B3

- Probability of Default Rating, downgraded to Caa1-PD from B3-PD

- First-Lien Senior Secured Term Loan, downgraded to Caa1 (LGD3) from B3 (LGD3)

- Second-Lien Senior Secured Term Loan, downgraded to Caa3 (LGD5) from Caa2 (LGD6)

- Rating outlook, Stable

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

The ratings could be upgraded with the return of meaningful growth in revenues and margins, potentially buoyed by expanding end market opportunities and higher margin new product introductions. Debt-to-EBITDA below 6.5x on a sustained basis and free cash flow-to-debt consistently in the low-to-mid-single digit range would also be necessary for an upgrade. Additionally, accelerated penetration into the electric vehicle market would be viewed favorably. The ratings could be downgraded if debt-to-EBITDA remains above 9x or if the EBITDA margin falls further as a result of the inability to offset reduced fixed cost absorption and customer price concessions. The lack of positive free cash flow, as well as organic revenue growth, or a weaker liquidity profile, including a cash position falling to the $40 million range, would also place downward pressure on ratings.

Robertshaw US Holding Corp. designs and manufactures electro-mechanical solutions, mechanical combustion systems, and electrical controls primarily for use in residential and commercial appliances, HVAC and transportation applications. Revenues for the latest twelve months ended September 30, 2020 were nearly $505 million.

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.

Eric Greaser 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

© 2020 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 INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S 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. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​​​​​