OREANDA-NEWS. S&P Global Ratings today affirmed its 'B' issue-level rating on SRS Distribution Inc.'s first-lien debt and revised its recovery rating on the debt to '4' from '3' following the company's announcement that it is planning to issue a $100 million incremental first-lien term loan. The '4' recovery rating indicates our expectation that lenders would receive average recovery (30%-50%; upper half of the range) of their principal in the event of a payment default. The company plans to use the proceeds from the incremental loan to prepay $60 million on its asset-based lending (ABL) facility and for general corporate purposes, including potential acquisitions. The first-lien term loan add-on will increase the outstanding balance on SRS' existing first-lien term loan due 2022 to $569 million ($572 million issue amount).

At the same time, we affirmed our 'CCC+' issue-level rating on SRS' $130 million second-lien term loan due 2023. The '6' recovery rating remains unchanged, indicating our expectation that lenders would receive negligible recovery (0%-10%) of their principal in the event of a payment default.

McKinney, Texas-based SRS Distribution is the third largest wholesale roofing distributor in the U. S. with 162 branches in 39 states.

The 'B' corporate credit rating on SRS incorporates our expectation that the company's leverage will be about 5.2x pro forma for the transaction (adjusted for operating leases). The corporate credit rating also reflects the company's stable and above-average operating profitability as a distributor, the relatively small--but increasing--size and scale of its operations compared with those of its larger and better capitalized competitors, its highly competitive end markets, and its exposure to volatile construction cycles and unpredictable weather patterns. For more information on SRS, please see our most recent research update, published June 3, 2016, on RatingsDirect.