The Tensar Corp. #B-# Corporate Rating Affirmed On Improved Liquidity And Stronger P Outlook Stable

Stocks and Financial Services Press Releases Wednesday June 27, 2018 09:02
NEW YORK--27 Jun--S&P Global Ratings

NEW YORK (S&P Global Ratings) June 26, 2018--S&P Global Ratings today affirmed its ratings on The Tensar Corp., including the 'B-' corporate credit rating. The rating outlook remains stable. We are also affirming our 'B' issue-level with a '2' recovery rating on Tensar's first-lien term loan due 2021 and our 'CCC+' issue-level rating with a '5' recovery rating on Tensar's second-lien term loan due 2022.

At the same time, we are revising our liquidity assessment to adequate from less than adequate as the company has maintained covenant compliance while its cash sources exceed uses by 3x.

We are affirming our 'B-' corporate credit rating on Tensar. It is one of the smallest building material companies that we rate, with sales of under $200 million. The company is narrowly focused and operates in a niche market with two main products: Geo-Grid and Geopier. Demand for them is tied to residential, non-residential, and public infrastructure construction markets, which are subject to cyclicality. Tensar can be affected by volatile raw material costs, particularly resins, which account for 60% of all manufacturing costs. These factors are partially offset by our view of the company's established, global distribution network, and some pricing power given the technical nature of its products. Although there is a global customer base, 60% of revenues are from North America.

The S&P Global Ratings stable outlook reflects our view that Tensar will generate improved earnings and reduce debt leverage levels due to the continued improvement in the construction market and uptick in infrastructure spending in some of Tensar's regional markets, both of which drive the demand

for the company's site development solutions products. We also believe that the increased penetration and acceptance of the company's products in commercial and public works projects will provide incremental revenues. Despite these improvements, we still believe leverage ratios will remain elevated and in line with a 'B-' rating.

We view a downgrade as unlikely when business is improving. However, we could lower the rating within the next 12 months if interest coverage declined below 1.5x, or if liquidity deteriorates sufficiently to cause a heavy reliance on the company's revolving credit facility to fund operations or service interest. This could occur if EBITDA declined by almost 30% due to lower than expected spending in infrastructure and commercial construction, or if there was a robust increase in the cost of raw materials.

Although we are forecasting improved performance, we do not believe an upgrade is likely within the next 12 months given our forecast for leverage to remain around 7x. Any positive rating momentum would be predicated on improvement in the EBITDA margins by at least 400 bps-500 bps, coupled with 10% revenue

growth over the next 12 months such that leverage would fall to below 6x. If the company was able to maintain such leverage metrics in conjunction with improved size and product diversity we see upside to the rating however, we view this scenario as highly unlikely in the next 12 months.

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