Beacon Roofing Supply Inc.

The stable outlook reflects our view that Beacon will improve weak leverage metrics over the next 12 months but remain above 5x. This view is in the context of our forecast for 5% GDP growth next year and a rebound in housing starts to 1.3 million. That said, unpredictable storm volume, cyclical end-market demand, and recessionary pressures could affect the company's deleveraging. We may lower our ratings on Beacon over the next 12 months if adjusted debt to EBITDA climbs above 7x with little expectation of a quick rebound. This could occur if: EBITDA drops 20% below our forecast level, perhaps if a second wave of COVID-19 causes a prolonged shutdown in construction, or if the company uses its accessible

...Adjusted leverage is high and is likely to remain near 6x through the end of fiscal 2021. Herndon, Va.-based Beacon Roofing Supply Inc. is a $7 billion-plus roofing and building materials distributor. The company achieved its good scale largely through acquisitions. The largest of these was the purchase of Allied Building Products Corp. for nearly $2.9 billion in 2018. That transaction pushed adjusted leverage from a relatively conservative 2x to about 6.8x as of June 30, 2020. S&P Global Ratings had expected leverage to fall below 4x by 2020 based on its forecast for revenue growth and improved margins. Revenues, though higher on an absolute basis, are 10%-15% below our prior expectations and margin expansion proved difficult to achieve as the company faced challenges ranging from cost inflation last year to the pandemic-driven recession this year. We expect the leverage profile to improve based on our forecast for economic recovery next year and the company's recent success in cutting...

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