S&P: JELD-WEN Inc. Corporate Credit Rating Raised To 'B+' On Improved Margins And Leverage; Issue-Level Ratings Raised
At the same time, we raised our issue-level rating on JELD-WEN's $1.3 billion term loans due 2021 and 2022 to 'B+' (the same as the corporate credit rating) from 'B'. The recovery rating on the term loans remains '3', indicating our expectation of meaningful (50% to 70%; upper half of the range) recovery in the event of a payment default.
"The stable outlook reflects our view that JELD-WEN is likely to continue to improve its EBITDA and leverage over the next year, with the company maintaining leverage of about 4x or less over the next year," said S&P Global Ratings credit analyst Pablo Garces.
We could lower the rating if the company assumed a more aggressive financial policy than expected, using debt to finance a large dividend or an acquisition in the next 12 months. A less likely path to a downgrade would include a sharp decline in demand in JELD-WEN's end markets leading to depressed volume and unfavorable pricing, more specifically, a 15% decline in revenues or margins almost 2% weaker than our current expectations.
We could raise our rating within the next 12 months if JELD-WEN achieves its target EBITDA levels and reduces adjusted debt leverage to 3x-4x, a level consistent with a significant financial risk profile. The company's current majority financial-sponsor ownership could limit an upgrade unless JELD-WEN's sponsor-owner reduced its stake in the company to less than 40% or if the company reduced leverage to the stronger/lower end of the 3x-4x range in addition to its owners committing to maintaining a more conservative financial policy such that debt leverage would not exceed 4x.