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CORNERSTONE BUILDING: Moody’s Rates $400MM Unsecured Notes ‘Caa1’

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Moody’s Investors Service assigned a Caa1 rating to Cornerstone Building Brands, Inc.’s proposed $400 million senior unsecured notes due 2029. All other ratings for the company remain unchanged, including the B2 Corporate Family Rating, B2-PD Probability of Default Rating, B2 senior secured credit facilities rating and Caa1 senior unsecured rating. The SGL-2 Speculative Grade Liquidity Rating is also unchanged. The outlook is stable.

The proceeds from the new notes will be used to repay outstanding borrowings under the company’s ABL facility, to pay all fees and expenses related to the issuance, and to use the remaining net proceeds, if any, to repay outstanding amounts under its cash flow-based revolving credit facility. The transaction will be leverage neutral while improving the company’s debt maturity profile. Pro forma for the proposed offering, Moody’s projects Cornerstone’s debt-to-EBITDA (inclusive of Moody’s adjustments) will be 6.1x at year end 2020.

“With the proposed $400 million offering Cornerstone will enhance its financial flexibility by extending its debt maturity profile,” said Emile El Nems, a Moody’s VP-Senior Analyst.

The following rating actions were taken:

Assignments:

Issuer: Cornerstone Building Brands, Inc.

Senior Unsecured Notes, Assigned Caa1 (LGD5)

LGD Adjustment:

Senior Unsecured LGD changed to (LGD5) from (LGD6)

RATINGS RATIONALE

Cornerstone’s B2 Corporate Family Rating reflects the company’s leading position as the largest integrated manufacturer of exterior building products in North America for the commercial, residential, and repair and remodel construction industries, commitment to reduce leverage and good liquidity profile with no significant debt expiring until 2023. At the same time, Moody’s rating takes into consideration the company’s exposure to cyclical end markets and its high debt leverage.

The stable outlook reflects Moody’s expectation that during this uncertain economic environment Cornerstone will maintain stable profitability and generate cash that will be used to de-lever its balance sheet, despite declining revenue from weaker economic activity.

Cornerstone’s SGL-2 Speculative-Grade Liquidity Rating reflects Moody’s expectation of a good liquidity profile over the next 12-18 months. At July 4, 2020, the company’s liquidity profile was supported by (i) $483 million of cash and (ii) $146 million of availability under the company’s $611 million asset-based lending revolver (ABL). The ABL facility has a springing fixed charge covenant ratio of 1:1 which gets triggered when availability under the ABL is below 10% of total commitments or the borrowing base, whichever is lower. Moody’s expects the company to remain in compliance with all its financial covenants over the next 12 to 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if:

— Debt-to-EBITDA is below 5.0x for a sustained period of time

— EBITA-to-Interest expense is above 2.25x for a sustained period of time

— The company improves its free cash flow and its liquidity profile

— The outlook for the homebuilding industry is favorable

The ratings could be downgraded if:

— Debt-to-EBITDA is above 6.0x for a sustained period of time

— EBITA-to-Interest expense is below 1.5x for a sustained period of time

— The company’s liquidity deteriorates

— The homebuilding industry outlook turns negative

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020.

Headquartered in Cary, North Carolina, Cornerstone Building Brands, is the largest manufacturer of exterior building products for residential and low-rise non-residential buildings in North America. Its products include windows and vinyl siding as well as engineered metal building systems, metal components, coil coatings, and insulated metal panels. For the LTM period ended July 2020, Cornerstone generated $4.8 billion in pro forma net sales.