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Spectrum Brands, Inc. -- Moody's says that Spectrum Brand's separation of appliance business, Tristar acquisition, adds to portfolio reshaping considered in review

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Announcement: Moody's says that Spectrum Brand's separation of appliance business, Tristar acquisition, adds to portfolio reshaping considered in reviewGlobal Credit Research - 08 Feb 2022New York, February 08, 2022 -- Moody's Investors Service ("Moody's") commented that Spectrum Brands, Inc.'s ("Spectrum") plans to separate its appliance business and to acquire Tristar Product's Kitchen Appliance Segment ("Tristar") adds to its ongoing portfolio reshaping plans and will be considered in the review for upgrade.On February 4, 2022, Spectrums Brand Inc. announced that it reached an agreement to purchase Tristar Product's Kitchen Appliance Segment for $325 million in cash and $125 million potential earn-out payments. Spectrum concurrently also announced that it intends to separate its Home Appliance and Personal Care (HA&PC) business (including Tristar) into a distinct company. Spectrum has not decided on the form of the separation but noted that options include, but are not limited to, a partial or complete spin-off to shareholders, an initial public offering, or a merger with an existing publicly traded entity. This announcement follows a previous announcement from September 8, 2021, that the company will sell its Hardware and Home Improvement business (HHI) to ASSA ALBOY for $4.3 billion in cash. The announcements will be considered in Moody's review for upgrade of Spectrum's ratings including the B1 Corporate Family Rating (CFR) wherein the company is planning to materially reduce leverage alongside a significant portfolio reshaping.Following the divestiture of both these businesses, Spectrum will be approximately one-third its original size and will focus on its higher margin Global Pet Care and Home and Garden businesses. These remaining businesses combined generated approximately $1.76 billion in sales and $303 million (company calculated) in EBITDA over the last twelve months ending January 2, 2022. Spectrum did not provide details of the HA&PC spin-off structure but reiterated its plans originally announced last September to materially reduce its long-term net debt to adjusted EBITDA leverage target to a range of 2.0x to 2.5x from a prior range of 3.0x - 4.0x (company calculated). On that basis, the current leverage level is even higher at 4.8x as of January 2, 2022. Additionally, the company plans to invest for organic growth, pursue complimentary acquisitions, and return capital to shareholders.Moody's believes that a material reduction in indebtedness and financial leverage following the sale of HHI and separation of HA&PC will better position the company to pursue complementary acquisitions focused on higher margin consumable products. The loss of diversity and scale and lower earnings are nevertheless negative and are being evaluated in the review. Spectrum has also not announced what it plans to do with the dividend and an unchanged dividend payout of $0.42 per share would constrict free cash flows going forward.Spectrum's ratings were placed under review for possible upgrade on September 9, 2021 following the announcement to sell HHI and reduce financial leverage. The announcement to separate HA&PC will further reduce scale and diversification. However Moody's believes the remaining business will have greater financial flexibility through lower leverage and an upgrade of Spectrum's ratings remains possible. As discussed in the September 2021 press release, Moody's final ratings determination will focus on assessing (1) the strategic operating focus including the trajectory of Spectrum's earnings for the remaining business segments following the loss of scale and diversity, (2) the company's new capital structure and free cash flow outlook following the completion of the sale and debt repayment, as well as (3) the planned deployment of proceeds including the business risk associated with potential future acquisitions.Tristar is an appliance company that makes air friers, toaster ovens, grills, juicers, pasta makers and cookware with well-known consumer brands such as PowerXL, Emeril Lagasse, and Copper Chef. Tristar generated sales and EBITDA of approximately $546 million and $63 million respectively as of the last twelve months ending December 2021. The acquisition will create a combined Home Appliance and Personal Care (HA&PC) business segment with $1.8 billion in sales and approximately $142 million in EBITDA (company-calculated).To fund the upcoming acquisition of Tristar, Spectrum will enter into a new $500 million revolving credit facility (unrated) that will be pari passu with its existing $600 million revolver expiring in June 2025. Moody's expects that the additional financing will continue to provide Spectrum with very good liquidity over the next year given cash on hand of $205 million as of January 2, 2022 and remaining revolver availability of approximately $300 million following the acquisition with no material neat term maturities.Headquartered in Middleton, Wisconsin, Spectrum Brands, Inc. is a global consumer product company with a diverse portfolio including small appliances, lawn and garden, electric shaving and grooming, pet supplies, household insect control and cleaning, and residential locksets. The company is publicly traded with annual revenue of approximately $4.6 billion as of last 12 months ending January 2, 2022 (inclusive of HHI).REFERENCES/CITATIONS[1] Spectrum Brands to Acquire Tristar Products' Appliance and Cookware Business and Combine It With Its Home and Personal Care Segment | Spectrum Brands, Inc. https://investor.spectrumbrands.com/news-releases/news-release-details/spectrum-brands-acquire-tristar-products-appliance-and-cookwareThis publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Maria Iarriccio 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 John E. Puchalla, CFA 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 © 2022 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. MOODY’S 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. 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