Rough Country's liquidity is adequate, constrained by Moody's expectations of a modest cash balance and reduced capacity to borrow under the revolving credit facility ($10 million is expected to be drawn to fund this dividend). Furthermore, Moody's believes the $20 million revolving credit facility is no longer sufficiently sized to cover the company's annual cash charges (pro forma interest expense expected to easily exceed $20 million). Liquidity is supported by Moody's expectation for free cash flow to be substantial and consistent with prior years, highlighted by modestly stronger earnings, efficient working capital management and low capital expenditure requirements.
Rough Country has limited direct environmental risk relating to carbon emissions given the nature of its add-on products.
Moody's views social risk for Rough Country to be manageable, with the biggest priority to be product safety for customers and protecting any customer personal data through a point of sale. The company will also need to ensure the continuity of its workforce, given the concentration of assembly in its facility.
On governance, with two debt-funded distributions totaling $316 million within the last four months, Rough Country's financial policy has shifted to be more aggressive from what had been a track record of debt repayment after relatively high financial leverage. Moody's does not anticipate a further increase in leverage beyond the pro forma impact of the debt to fund the current dividend.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Rough Country substantially increases its scale and product diversification while maintaining its high level of profitability. A shift back to a more conservative financial policy to support leverage near 3x debt/EBITDA and EBITA/interest expense sustained above 4x could support an upgrade.
The ratings could be downgraded if organic revenue growth stalls, or if margins materially weaken, or with an acceleration of the recently changed financial policy. Specifically, expectations of debt/EBITDA above 4.5x or EBITA/interest expense below 2x could result in a negative rating action. A deterioration in the liquidity profile, including an extended period of limited availability under the revolving credit facility or sharply weaker free cash flow could also pressure the ratings.
..Issuer: Rough Country, LLC
.... Corporate Family Rating, Affirmed at B2
.... Probability of Default Rating, Affirmed at B2-PD
....Senior Secured 1st Lien Revolving Credit Facility, Affirmed at B2 (LGD4)
....Senior Secured 1st Lien Term Loan, Affirmed at B2 (LGD4)
Outlook Actions: ..Issuer: Rough Country, LLC ....Outlook, Remains Stable
The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Rough Country, LLC, headquartered in Dyersburg, Tennessee, is a US-focused manufacturer of aftermarket performance suspension products and accessories. The company provides lift and leveling kits, shocks and stabilizers, and accessories primarily for trucks, SUV and Jeep models. Gridiron Capital is the majority owner of Rough Country. Revenue for the twelve months ended December 31, 2020 was approximately $320 million.
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.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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.
Mike Cavanagh 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
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