OREANDA-NEWS. S&P Global Ratings said today it assigned its 'B' corporate credit rating to Forterra Inc. The rating outlook is stable.

At the same time, we assigned our 'B+' issue-level rating (one-notch higher than the company's corporate rating) to Forterra's proposed $1 billion first-lien term loan due 2023. We have assigned our '2' recovery rating to the first-lien term loan, indicating our expectation of substantial (70% to 90%; lower end of the range) recovery for lenders in the event of a payment default. We do not rate the company's proposed $300 million ABL facility.

"The stable outlook on Forterra Building Products reflects our view that the company will remain highly leveraged, with debt-to-EBITDA leverage of more than 5x pro forma for the transaction," said S&P Global Ratings credit analyst Pablo Garces. "Our base case scenario assumes the company will not undertake any further large-scale acquisitions or dividends in 2016."

We could lower our rating on Forterra if liquidity deteriorates to a level we viewed as less than adequate, or in the unlikely event that leverage measures deteriorate to a level that we consider weak for the rating--at or surpassing 7x over the next year. These events could occur if the company experienced limited availability under its ABL facility or its margins were significantly lower that we project--by at least 350 basis points--possibly as a result of heightened competition or greater-than-expected difficulties integrating its acquisitions.

We could raise our corporate credit rating on Forterra if it successfully integrates its recent acquisitions and performs ahead of projections over the next 12 months, lowering leverage to 4x while maintaining a commitment from the financial sponsor that adjusted leverage will not surpass 5x. Although the proposed IPO is a strong indicator that Forterra's financial sponsor is intent on lowering its ownership stake in the medium term, we would need evidence that the company's sponsor is committed to a more conservative financial policy before considering an upgrade.