S&P: Gypsum Management & Supply Inc. Rating Raised To 'B+' From 'B'; Outlook Stable
At the same time, we raised the issue-level rating on the company's first-lien term loan to 'B+' (in line with the 'B+' corporate credit rating) from 'B'. The recovery rating remains unchanged at '3', which indicates our expectation of meaningful (50%-70%; upper half of the range) recovery in the event of a payment default.
"The stable outlook reflects our expectation that Gypsum's forecast 2017 leverage will remain within the aggressive financial risk profile category, with debt to EBITDA between 4x and 4.5x and FFO to debt ranging from 12%-20%," said S&P Global Ratings credit analyst Kimberly Garen. "The outlook also reflects our expectation that liquidity will remain adequate to meet all of the company's obligations and that availability under the secured revolving credit facility will be adequate to fund working capital and capital spending requirements."
We view a downgrade to be unlikely over the next 12 months based on our expectation for favorable market conditions for Gypsum's business over that timeframe. However, we would lower our rating if the U. S. housing recovery stalled, resulting in reduced EBITDA and leverage trending toward 5x. We could also lower our rating if the company assumed a more aggressive financial policy incorporating debt financed dividends, acquisitions, or share repurchases such that debt leverage approached 5x.
We are unlikely to upgrade the company over the next year given its continued majority ownership by its financial sponsor and debt leverage above 4x, commensurate with an aggressive financial risk profile. However, we could consider an upgrade if the company sustained debt to leverage at 3x or below and the financial sponsor divested its investment to less than a controlling position.