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Masonite International Corporation — Moody’s upgrades Masonite’s CFR to Ba1; outlook stable

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Rating Action: Moody’s upgrades Masonite’s CFR to Ba1; outlook stableGlobal Credit Research – 26 Apr 2021Approximately $800 million of debt securities affectedNew York, April 26, 2021 — Moody’s Investors Service (Moody’s) upgraded Masonite International Corporation’s (Masonite) Corporate Family Rating to Ba1 from Ba2 and Probability of Default Rating to Ba1-PD from Ba2-PD. Moody’s also upgraded the ratings on the company’s senior unsecured notes to Ba1 from Ba3. The outlook is stable. The SGL-1 Speculative Grade Liquidity Rating was maintained.The upgrade of Masonite’s Corporate Family Rating to Ba1 reflects Moody’s expectation that strong credit metrics seen in 2020 will persist. Credit metrics have recently benefited from a meaningful improvement in Masonite’s operating margin accomplished through higher product pricing, favorable mix, productivity initiatives and strong demand. Moody’s expects further margin improvement in 2021. Additionally, Moody’s expects the company to maintain conservative financial policies with respect to leverage, liquidity, acquisition activity and shareholder friendly transactions. At January 3, 2021 Masonite’s debt to EBITDA stood at approximately 2.6x, EBITA to interest coverage at 5.1x, while EBITA margin exceeded 12%. The company’s residential end markets, including new construction and repair and remodeling, are expected to remain strong in the next 12 to 18 months and support Masonite’s revenue expansion and operating results.The upgrade of the rating on Masonite’s senior unsecured notes to Ba1 reflects their position as the majority of debt in the capital structure and the expectation of a higher recovery rate in a default scenario given the stronger credit profile. However, the notes rank behind the claim on assets pledged to the ABL revolver and general obligations of the operating subsidiaries due to a lack of guarantees from subsidiaries generating the majority of EBITDA and cash flow.The following rating actions were taken:Upgrades:..Issuer: Masonite International Corporation…. Corporate Family Rating, Upgraded to Ba1 from Ba2…. Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD….Senior Unsecured Regular Bond/Debenture, Upgraded to Ba1 (LGD4) from Ba3 (LGD4)Outlook Actions:..Issuer: Masonite International Corporation….Outlook, Remains StableRATINGS RATIONALEMasonite’s Ba1 Corporate Family Rating is supported by the company’s: 1) strong market position as one of only two vertically integrated interior molded door manufacturers in North America and geographically diversified sales; 2) strong competitive position that benefits from technology innovation and trendsetting products; 3) conservative financial policy and a strong balance sheet; 4) significant exposure to the repair and remodeling end market, which tends to be less volatile than new construction; and 5) track record of operating margin improvement and solid free cash flow supported by productivity initiatives such as automation, facility redesigns, and economies of scale.At the same time, the company’s credit profile is constrained by: 1) the cyclicality of residential and commercial end markets; 2) its active acquisition strategy, which requires good execution to realize expected synergies, presents integration challenges and may result in leverage increases; 3) shareholder friendly activities, including share repurchases; and 4) exposure to volatility in raw material input costs including steel, wood and chemicals.The stable outlook reflects Moody’s expectation that over the next 12 to 18 months Masonite will benefit from residential end market tailwinds and demonstrate strong credit statistics.Masonite’s SGL-1 Speculative Grade Liquidity Rating reflects Moody’s expectation that the company will maintain very good liquidity over the next 12 to 15 months. Masonite’s liquidity is supported by solid free cash flow, $365 million of cash at January 3, 2021, ample availability under the company’s $250 million ABL revolving credit facility, and the flexibility under its springing fixed charge coverage covenant.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if the company meaningfully expands scale, improves product diversity and customer mix, achieves sustained EBITA margin above 14%, maintains conservative financial policies with respect to leverage, acquisitions and shareholder returns. Debt to EBITDA approaching 2.0x, EBITA to interest coverage above 7.0x and consistently strong free cash flow accompanied by stable end market conditions would be important considerations for an upgrade.The ratings could be downgraded if Masonite’s debt to EBITDA is sustained above 3.0x, EBITA to interest expense falls below 5.0x, EBITA margins decline below 10%, or liquidity deteriorates. Additionally if the company engages in substantial debt funded acquisitions and/or shareholder friendly transactions, financial and operating strategies become more aggressive, liquidity deteriorates, or end markets weaken, the ratings could be downgraded.The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Masonite International Corporation is one of the largest vertically integrated manufacturers of doors in the world. It offers interior and exterior doors for both residential and commercial end uses and serves approximately 7,600 customers in 60 countries. The company’s products include: interior molded, interior stile and rail, exterior fiberglass and exterior steel residential doors, interior architectural wood doors, wood veneers and molded door facings and door core. Its primary geographies of operation include the US, the UK, Canada, and Mexico. In 2020, Masonite generated approximately $2.3 billion in revenue.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Natalia Gluschuk Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dean Diaz Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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