Rating Action: Moody's affirms Concrete Pumping Holdings' B2 CFR, assigns B3 to 2nd lien senior secured notes; outlook stable
Global Credit Research - 19 Jan 2021
New York, January 19, 2021 -- Moody's Investors Service ("Moody's") has assigned a B3 rating to Concrete Pumping Holdings, Inc.'s ("CPH") proposed second lien senior secured notes and upgraded the company's Speculative Grade Liquidity Rating (SGL) to SGL-2 from SGL-3. Moody's also affirmed CPH's existing ratings, including the B2 Corporate Family Rating, B2-PD Probability of Default Rating (PDR), and B2 rating on the company's existing first lien term loan. The outlook is stable.
The B3 rating on the company's proposed $350 million second lien senior secured notes, maturing in January 2026, is one notch below the B2 Corporate Family Rating reflecting its subordination to the ABL revolver (not rated). The ABL is expected to be amended and upsized to $125 million. The issuance of the second lien senior secured notes and borrowings from the ABL will be used to repay the outstanding $381 million of first lien term loan. The B2 rating on the first lien term loan with be withdrawn at the close of the transaction.
The affirmation of the B2 CFR reflects Moody's expectation that the transaction will be leverage neutral and only extend the company's maturity profile by one year. While the upgrade of the Speculative Grade Liquidity rating reflects the elimination of required amortization through the refinancing of CPH's term loan and the increase in available liquidity and extended expiration date of the amended and upsized ABL.
Assignments:
..Issuer: Concrete Pumping Holdings, Inc.
....Senior Secured Notes, Assigned B3 (LGD4)
Upgrades:
..Issuer: Concrete Pumping Holdings, Inc.
.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3
Affirmations:
..Issuer: Concrete Pumping Holdings, Inc.
.... Corporate Family Rating, Affirmed B2
.... Probability of Default Rating, Affirmed B2-PD
....Gtd. Senior Secured Term Loan, Affirmed B2 (LGD4)
Outlook Actions:
..Issuer: Concrete Pumping Holdings, Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
CPH's B2 Corporate Family Rating reflects the company's robust EBITDA margin, service capability, geographic footprint, variable cost structure, limited working capital requirements, and free cash generation. As the company grows organically and through acquisition, management is focused on maintaining a strong balance sheet and directing free cash flow to debt reduction. Moody's is forecasting free cash flow and adjusted debt to EBITDA for 2021 and 2022 of $38 million and 3.6x and $39 million and 3.5x, respectively. The rating also reflects CPH's small scale. However, the company is larger than its US competitors in the fragmented concrete pumping industry. In addition, CPH serves cyclical end markets in the residential and non-residential construction space, which can result in volatile operating results.
The stable outlook reflects Moody's expectation of steady growth in revenue and earnings, in conjunction with, prudent balance sheet management and good liquidity.
The SGL-2 Speculative Grade Liquidity rating reflects Moody's expectation that the company will maintain good liquidity. Moody's expects CPH will continue to rely on its revolver and maintain an average of 65% availability over the next twelve months. The company's ABL facility will be governed by a springing fixed charge ratio covenant that is triggered if (i) an Event of Default has occurred, or (ii) minimum excess availability is below the greater of 12.5% of the ABL Revolver Limit, $16.5 million, or 12.5% of the UK Borrowing Base. Moody's expects CPH to remain in compliance over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if debt-to-EBITDA is maintained below 3.5x and EBITA-to-interest expense is above 3.0x on a sustained basis. Moody's could also upgrade the ratings if the company continues to increase its scale while maintaining good liquidity and a disciplined approach to acquisitions and leverage.
Moody's could downgrade the ratings if debt-to-EBITDA rises above 4.5x and EBITA-to-interest expense falls below 1.0x for a sustained period, or if there is a deterioration in the company's liquidity profile.
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Concrete Pumping Holdings, Inc. is a leading provider of concrete pumping services and concrete environmental waste management solutions in the United States and United Kingdom. In the United States, the company operates across approximately 90 locations in 22 states in the Pacific, Rocky Mountain, Central, South Central, and Southeastern regions. CPH operates in the United Kingdom through approximately 30 branch locations. Eco-Pan, a subsidiary of CPH, operates a route-based business model in the US providing custom metal pans and containers to construction sites in which waste concrete is placed, picked up, and disposed of at concrete recycling centers. Revenue was $304 million for the fiscal year ended October 31, 2020.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.
Scott Manduca 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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