The revision of the outlook to Stable from Negative reflects the expectation that operating conditions will be favorable over the foreseeable future and the strong performance and resiliency of demand that the company has shown over the pandemic in 2020 is expected to continue. Demand for residential AV equipment is supported by secular tailwinds as more consumers seek to make their homes connected and as homes become 'smarter'. The company's products are targeted towards the high end of the residential market and projects that are completed by the company's network of installers tend to be highly technical in nature and cost in the tens of thousands in overall project costs. During the pandemic this segment of the market held up better than expected, driven largely by the fact that most job losses have been concentrated in the lower income jobs and not as much in the company's target customer base. Going forward, leverage is expected to decline to around 6.7x by the end of 2021 and free cash flow to be positive for the year, driven by steady revenue growth and stable margins.
Moody's views SnapAV's liquidity as good, supported by about $76 million of cash on the balance sheet as of September 30, 2020 and expected $46 million in free cash flow for 2021, which together should cover the expected cash outflow through 2021, including a $5.1 million mandatory debt amortization. The company's $60 million revolver has been fully repaid after the September quarter end and has full availability. The revolver has a financial covenant: a static 8.15x first lien net leverage maximum, tested when borrowings exceed 35% of the revolver commitment. Moody's does not expect the company to draw down on the revolver over the next 12 months and thus is not expected to be subject to the covenant.
Affirmations:
..Issuer: Wirepath LLC
.... Corporate Family Rating, Affirmed B3
.... Probability of Default Rating, Affirmed B3-PD
....Senior Secured Bank Credit Facility, Affirmed B3 (LGD3)
Issuer: Wirepath LLC
....Outlook, Changed To Stable From Negative
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Moody's expects 1) sustained organic revenue growth and increasing scale; 2) debt to EBITDA to remain below 5.5x; 3) free cash flow to debt to be sustained above 5.0%; and 4) good liquidity.
The ratings could be downgraded if 1) revenue or profits do not grow as expected, evidencing increased competition or loss of market share; 2) Moody's expects debt to EBITDA will be sustained above 7.0x; 3) liquidity deteriorates; or 4) free cash flow is expected to be negative (all metrics Moody's adjusted).
Wirepath LLC (dba SnapAV) is a technology-enabled, value-added wholesale supplier and distributor of products and services to integrators in, primarily, the home and small business audio visual ("AV") equipment sector. SnapAV, which generated $786 million of revenues for the LTM period ended September 30, 2020, is owned by funds affiliated with private equity sponsor Hellman & Friedman. The company is headquartered in Charlotte, NC.
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.
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.
Farah Zakir 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 Karen Nickerson 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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