Guardian Industries Corp.’s long term issuer rating was upgraded to Baa2 from Baa3 and commercial paper rating to P-2 from P-3.
Moody’s Investors Service upgraded Guardian Industries Corp.’s (Guardian) long term issuer rating to Baa2 from Baa3 and commercial paper rating to P-2 from P-3. The rating outlook is stable.
The following rating actions were taken:
Guardian Industries Corp.
Long term issuer rating, upgraded to Baa2 from Baa3;
Short term rating, upgraded to Prime-2 from Prime-3;
The rating outlook is stable.
Guardian Europe S.a.r.l.
Short term rating, upgraded to Prime-2 from Prime-3;
The rating outlook is stable.
Ratings rationale
The rating action reflects Guardian’s conservative financial policies, focus on competitively-advantaged, high-margin businesses, strong free cash flow generation, and excellent liquidity. Adjusted debt-to-EBITDA is below 2.0x, resulting from debt reduction and improving EBITDA following the 2012 transaction with Koch Industries.
Guardian’s Baa2/P-2 ratings are currently supported by the company’s scale, global diversification, and strong market positions globally. Additionally, the ratings are supported by the company’s solid liquidity position and improving EBITA margin. The ratings also consider Guardian’s global exposure to cyclical end markets, including the residential and non-residential construction and automotive industries, and the resulting vulnerability of the company’s operations to the impact of global slowdowns. Exposure to volatile input costs and Guardian’s size relative to its rated peers are also factored into the rating.
The stable outlook presumes the company will maintain its conservative financial policies. The stable outlook also assumes Guardian will continue to benefit from the slow, if uneven, recovery in its end markets as it continues to grow its businesses with demonstrated competitive advantages.
The company’s liquidity is currently supported by healthy cash balances, availability under its $400 million senior unsecured revolving credit facility due in November 2017, ample cushion under its financial covenants and lack of significant near term maturities.
The ratings may be upgraded if Guardian grows revenue while maintaining diversification, improves EBITA margin closer to 15%, and maintains adjusted debt-to-EBITDA below 2.0x and retained cash flow to net debt in excess of 35%.
The ratings could be lowered in the event that global demand falls significantly below currently weak levels, potentially resulting in operating losses and increasing financial leverage. More specifically, adjusted debt-to-EBITDA exceeding 2.5x, diminished liquidity or EBITA margins less than 6% could result in a downgrade. Finally, a shift in financial policies toward a more aggressive growth strategy leading to a more leveraged balance sheet or substantial shareholder distributions would also negatively pressure the ratings.
The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014.