Research Update: Beacon Roofing Supply Inc. 'BB-' Rating, Debt Ratings Affirmed; Outlook Remains Negative On High Leverage

Beacon Roofing Supply Inc. completed its $2.6 billion acquisition of Allied Building Products Corp. on Jan. 2, 2018. Since the acquisition, Beacon has maintained high leverage (6.7x for the fiscal year ending Sept. 30, 2018, including our treatment of $400 million of perpetual convertible preferred equity as debt-like; 5.9x without such treatment), with improvement in each of the last two quarters as earning accrete. We expect Beacon's leverage to improve to 5.1x in 2019 as acquisitions closed in fiscal 2018 pass their one-year marks and the company reduces debt. We are affirming the 'BB-' issuer credit rating on Beacon, our 'BB+' issue-level rating on Beacon's $970 million senior secured term loan due 2025, and our 'B+' issue-level rating on the

...+ Beacon Roofing Supply Inc. completed its $2.6 billion acquisition of Allied Building Products Corp. on Jan. 2, 2018. + Since the acquisition, Beacon has maintained high leverage (6.7x for the fiscal year ending Sept. 30, 2018, including our treatment of $400 million of perpetual convertible preferred equity as debt-like; 5.9x without such treatment), with improvement in each of the last two quarters as earning accrete. + We expect Beacon's leverage to improve to 5.1x in 2019 as acquisitions closed in fiscal 2018 pass their one-year marks and the company reduces debt. + We are affirming the '##-' issuer credit rating on Beacon, our '##+' issue-level rating on Beacon's $970 million senior secured term loan due 2025, and our 'B+' issue-level rating on the company's combined $1.6 billion of senior unsecured notes due 2023 and 2025. + The negative outlook reflects our view that leverage will improve but remain high for the rating at above 5x for the next few quarters. We could lower the rating...

Research Update