HONEYWELL INTERNATIONAL INC.
NYSE Stock symbol: HON
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Beacon Roofing Supply Inc.’s Proposed $300 Million
Senior Secured Notes Rated ‘BB’, Unsecured Notes
Lowered to ‘B-‘
September 25, 2019
FARMERS BRANCH (S&P Global Ratings) Sept. 25, 2019–S&P Global Ratings assigned its ‘BB’
issue-level rating and ‘1’ recovery rating to Beacon Roofing Supply Inc.’s proposed $300 million
senior secured notes issuance. The proposed senior secured notes will rank equally with the
company’s $970 million term loan, which is unchanged and carries a ‘BB’ issue-level rating, with a
‘1’ recovery rating. Beacon plans to use the proceeds from the notes offering to pre-fund the
company’s redemption of its $300 million senior unsecured notes due 2023 on Oct. 1, 2019.
However, the increased amount of senior secured debt will result in diminished recovery available
to unsecured lenders. As a result, we have lowered the issue-level rating on Beacon’s $1.3 billion
senior unsecured notes due 2025 to ‘B-‘ from ‘B’ and revised the recovery rating to ‘6’ from ‘5’.
The ‘1’ recovery rating on the Beacon’s secured debt indicates our expectation for very high
(90%-100%; rounded estimate: 90%) recovery in a default scenario. Our ‘6’ recovery rating on the
unsecured notes reflects our expectation of negligible recovery (0%-10%; rounded estimate: 0%)
in the event of a default.
For more information on Beacon Roofing Supply Inc., see our research update published on Aug.
30, 2019.
Key analytical factors
– Our assessment of recovery prospects contemplates a reorganization value for the company of
about $2.07 billion, reflecting emergence EBITDA of about $345 million and a 6x multiple. Our
emergence EBITDA assumption contemplates a rebound in profitability following the sharp
cyclical downturn that we believe is required for the company to default with the present
capital structure. As a result, our EBITDA assumption does not purport to represent a
default-level EBITDA, which we think could be substantially lower. The 6x multiple is within the
5x-6x range that we generally use for building products companies.
– Our simulated default scenario contemplates a default in 2023, stemming from a downturn in
the company’s end markets (U.S. residential and nonresidential roofing and reroofing),
heightened competition, and significant price increases imposed by suppliers that cannot be
passed on to customers. These adverse developments hamper margins and cash flow,
pressuring Beacon’s ability to meet its financial obligations and prompting the need for a
bankruptcy filing or restructuring.
Beacon Roofing Supply Inc.’s Proposed $300 Million
Senior Secured Notes Rated ‘BB’, Unsecured Notes
Lowered to ‘B-‘
September 25, 2019
PRIMARY CREDIT ANALYST
Pablo A Garces
Farmers Branch
+ 1 (214) 765 5884
pablo.garces
@spglobal.com
SECONDARY CONTACT
Thomas J Nadramia
New York
+ 1 (212) 438 3944
thomas.nadramia
@spglobal.com
www.spglobal.com/ratingsdirect September 25, 2019 1
THIS WAS PREPARED EXCLUSIVELY FOR USER RONALD SALINAS.
NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
mailto: pablo.garces@spglobal.com
mailto: pablo.garces@spglobal.com
mailto: thomas.nadramia@spglobal.com
mailto: thomas.nadramia@spglobal.com
– For purposes of our default scenario, we assumed aggregate borrowings of about $725 million
under the asset-based loan (ABL) facility, representing usage of about 60% of the $1.2 billion
U.S. commitment amount.
– We assume the collateral package for Beacon’s secured debt will encompass all of the
available reorganization value. Only a small portion of the reorganization value is
unencumbered under our analysis, representing the equity value of foreign subsidiaries not
pledged to secure the term loan.
Simulated default assumptions
– Year of default: 2023
– EBITDA at emergence: $345 million
– Implied enterprise value (EV) multiple: 6x
– Gross EV: $2.07 billion
Simplified waterfall
– Obligor (U.S. operations)/nonobligor (Canadian operations) valuation split: roughly 95%/5%
($1.97 billion/$105 million)
– Valuation split (net 5% administrative costs): $1.87 billion/$100 million
– Priority claims and adjustments (60% usage of the $1.2 billion U.S. ABL facility): $725 million
– Priority nonobligors claims: $60 million
– Collateral from nonobligor (65% stock pledge of remaining $35 million net EV at nonobligors
after subtracting secured nonobligors claims): $25 million
– Total collateral value for secured claims ($1.14 billion U.S. value remaining after coverage of
ABL facility plus $25 million remaining collateral from nonobligor): $1.17 billion
– Secured claims (Total term loan claim*: $950 million, proposed senior secured notes: $305
million): $1.25 billion
– –Recovery expectation for term loan: 90%-100% (rounded estimate: 90%)
– Unpledged value available to unsecured claims: $15 million
– Estimated unsecured claims: $1.31 billion
– –Recovery expectation for senior notes: 0%-10% (rounded estimate: 0%)
*Senior secured claim amount reflects $925 million of term loan principal, less payment of
scheduled amortization of 1% per year through 2022, plus an assumption for accrued but unpaid
interest outstanding at default.
Related Criteria
– General Criteria: Group Rating Methodology, July 1, 2019
– Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
– Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate
Issuers, Dec. 7, 2016
www.spglobal.com/ratingsdirect September 25, 2019 2
THIS WAS PREPARED EXCLUSIVELY FOR USER RONALD SALINAS.
NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Beacon Roofing Supply Inc.’s Proposed $300 Million Senior Secured Notes Rated ‘BB’, Unsecured Notes Lowered to ‘B-‘
– Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014
– Criteria | Corporates | Industrials: Key Credit Factors For The Building Materials Industry, Dec.
19, 2013
– General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
– Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
– General Criteria: Methodology: Industry Risk, Nov. 19, 2013
– General Criteria: Methodology: Management And Governance Credit Factors For Corporate
Entities, Nov. 13, 2012
– General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings
information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating
action can be found on S&P Global Ratings’ public website at www.standardandpoors.com. Use the Ratings search
box located in the left column.
www.spglobal.com/ratingsdirect September 25, 2019 3
THIS WAS PREPARED EXCLUSIVELY FOR USER RONALD SALINAS.
NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Beacon Roofing Supply Inc.’s Proposed $300 Million Senior Secured Notes Rated ‘BB’, Unsecured Notes Lowered to ‘B-‘
www.spglobal.com/ratingsdirect September 25, 2019 4
THIS WAS PREPARED EXCLUSIVELY FOR USER RONALD SALINAS.
NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Beacon Roofing Supply Inc.’s Proposed $300 Million Senior Secured Notes Rated ‘BB’, Unsecured Notes Lowered to ‘B-‘
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