Firms & Funds

Hellman & Friedman’s Associated Materials may miss debt payment: Moody’s

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Cranes are seen in silhouette at dusk at a building construction site in Paris, France, October 31, 2015. REUTERS/John Schults - RTX1U62E
  • Company operates on a 12.2x debt-to-EBITDA ratio
  • Ohio business may benefit from uptick in construction
  • Associated Materials faces semi-annual debt payments of $39 mln

Associated Materials Inc, the building products specialist owned by Hellman & Friedman, faces an “elevated risk of default” and may miss a key debt payment in the coming year despite an expected uptick in overall construction activity, according to Moody’s.

Associated Materials held about $4 million in cash as of July 4, along with $44.3 million of availability under an asset-backed loan. It is operating at a debt-to-EBITDA ratio of 12.2x and projected free cash flow of about $40 million to $50 million over the next 12 months, according to Moody’s analysts Tiina Siilaberg and Glenn Eckert.

The Cuyahoga Falls, Ohio, company faces “considerable difficulties” for a $39 million semi-annual note interest payment in May 2016, Moody’s said.

“The company’s ability to raise cash is uncertain,” analyst Siilaberg said in a research note. ”We believe that there is a low likelihood that Hellman & Friedman … will infuse additional capital to the company absent a significant operational turnaround.”

In 2017, the company’s $830 million in senior secured notes mature and its $213 million revolving credit facility expires.

“Thus far, Associated Materials has not been able to demonstrate significant improvement in performance which has been weighed down by product delivery and quality issues,” Siilaberg said.

On the plus side, repair, remodeling and new home construction activity may grow in 2015 and 2016, providing a lift to the company’s core business of vinyl windows and siding, aluminum and steel siding. The company’s revenue and EBITDA may improve over the next 12 months, Moody’s noted

The rating agency recently cut its view on Associated Materials to Caa3 from Caa, with a stable outlook. Moody’s considers obligations with a Caa rating in poor standing and subject to very high credit risk, according to definitions from the firm.

Hellman & Friedman bought Associated Materials from Investcorp and Harvest Partners for $1.3 billion in 2010.

Action Item: Associated Materials’ investor relations website is available here: http://bit.ly/1Mawl0g