Smyrna Ready Mix Concrete, LLC — Moody’s upgrades Smyrna’s CFR to Ba3; Assigns Ba3 to senior secured debt; outlook stable

Rating Action: Moody’s upgrades Smyrna’s CFR to Ba3; Assigns Ba3 to senior secured debt; outlook stableGlobal Credit Research – 10 Mar 2022New York, March 10, 2022 — Moody’s Investors Service (Moody’s) upgraded Smyrna Ready Mix Concrete, LLC’s (Smyrna) Corporate Family Rating (CFR) to Ba3 from B1, Probability of Default Rating (PDR) to Ba3-PD from B1-PD, and the rating on the company’s senior secured notes to Ba3 from B1. Moody’s also assigned a Ba3 rating to the company’s proposed senior secured credit facility. The outlook remains stable.The rating upgrades reflect Moody’s expectation of the continued strengthening of Smyrna’s credit profile following the successful integration of several bolt-on acquisitions during 2020 and 2021, a larger and more geographically diversified revenue base, greater predictability of free cash flow, and a commitment by the management team to maintain modest leverage.The Ba3 rating assigned to the $650 million senior secured term loan facility maturing in 2029 and to the $1,100 million Senior Secured Notes maturing in 2028, is on par with the CFR reflecting their position as the preponderance of debt in Smyrna’s capital structure. The company’s senior secured debt is contractually subordinated to the company’s $250 million Asset Based Revolving Credit Facility expiring in 2026 which is secured by the account receivable and inventory.The proceeds from the proposed $650 million offering will be used primarily to fund pending acquisitions. Pro forma for the proposed financing and the bolt-on acquisitions, Moody’s projects Smyrna’s leverage will be 3.9x at December 31, 2022 (including Moody’s adjustments).“Over the past three years, Smyrna has materially grown its profitability (organically and through acquisitions), invested in the business, and maintained a disciplined approach to balance sheet management and liquidity.” said Emile El Nems, a Moody’s VP-Senior Credit Officer. “Going forward, we expect this management team to remain focused on execution, pursue additional tuck-in acquisitions, and remain committed to a conservative financial policy.”The following rating actions were taken:Upgrades:..Issuer: Smyrna Ready Mix Concrete, LLC…. Corporate Family Rating, Upgraded to Ba3 from B1…. Probability of Default Rating, Upgraded to Ba3-PD from B1-PD….Senior Secured Regular Bond/Debenture, Upgraded to Ba3 (LGD4) from B1 (LGD4)Assignments:..Issuer: Smyrna Ready Mix Concrete, LLC….Gtd Senior Secured Term Loan B, Assigned Ba3 (LGD4)Outlook Actions:..Issuer: Smyrna Ready Mix Concrete, LLC….Outlook, Remains StableRATINGS RATIONALESmyrna’s Ba3 Corporate Family Rating reflects the company’s market position as one of the leading regional producers of construction materials in Tennessee, Florida, Georgia, Colorado Kentucky, Texas and Michigan, increasingly vertically integrated assets and broad customer base. In addition, Moody’s credit rating is supported by the company’s solid EBITDA margins and commitment to maintain modest leverage and good liquidity. At the same time, Moody’s rating takes into consideration the company’s vulnerability to cyclical end markets, the competitive nature of its ready-mix concrete business, its acquisitive growth strategy, and material revenue exposure to Tennessee and Florida.Moody’s expects Smyrna to maintain very good liquidity over the next 12-18 months. Pro forma for the transaction, Smyrna’s liquidity position is supported by roughly $15 million of cash, a $250 million asset based revolving credit facility, under which Moody’s expects $210 million will remain available, and Moody’s expectation that the company will generate around $150 million in free cash flow in 2022. The asset based revolving credit facility, which expires in 2026, is governed by a springing fixed-charge coverage ratio of 1.0x, that comes into effect if availability under the asset based revolving credit facility is less than 15% of the total revolver availability.The stable outlook reflects Moody’s expectation that Smyrna will grow revenue organically, maintain good operating performance, generate solid free cash flow, and remain committed to modest leverage. This is largely driven by Moody’s view that the US economy will improve sequentially and remain supportive of the company’s underlying growth drivers.The proposed term loan includes an ability to incur incremental indebtedness up to either $500 million, or the greater of 100% of LTM EBITDA so long as the pro forma net leverage ratio does not exceed 3.85x for first lien debt and 4.35x for junior debt.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if the company improves free cash flow and maintains a conservative financial strategy such that debt-to-EBITDA is sustained below 3.5x, adjusted retained cash flow to net debt is approaching 20%, and EBIT-to-interest expense is approaching 3.0x.The ratings could be downgraded if the company’s operating performance and liquidity deteriorates and financial strategy becomes aggressive such that debt-to-EBITDA is sustained above 4.5x, adjusted retained cash flow to net debt is below 10%, and EBIT-to-interest expense is sustain below 2.0x.The principal methodology used in these ratings was Building Materials published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287900. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Smyrna Ready Mix Concrete, LLC is a manufacturer and retailer of ready-mixed concrete in Tennessee, Florida, Kentucky, Ohio, Indiana, Texas, Georgia, Colorado, Alabama, Arkansas, Michigan, South Carolina, North Carolina, Mississippi, Wyoming and Virginia. The company operates within two primary segments: (i) ready-mixed concrete, which accounts for more than 90% of revenue, and (ii) aggregates and other construction materials, which accounts for the remaining % amount.Smyrna’s revenue for the last twelve months ending December 31, 2021, was about $1.5 billion.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. 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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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.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. Emile El Nems VP – Senior Credit Officer Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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