Moody's Raises US Concrete's (USCR) CFR to 'B2'; Notes Modestly Improving Fundamentals

Moody's Investors Service upgraded the Corporate Family Rating of U.S. Concrete, Inc. (Nasdaq: USCR) to B2 from B3, the Probability of Default Rating to B2-PD from B3-PD, and the company's senior secured notes to B3 from Caa1. The Speculative Grade Liquidity Rating is unchanged at SGL-2. The rating outlook is stable.

The following rating actions were taken:

Corporate Family Rating, upgraded to B2 from B3;

Probability of Default Rating, upgraded to B2-PD from B3-PD;

$200 million senior secured notes due 2020, upgraded to B3, LGD4 from Caa1, LGD4;

Speculative grade liquidity rating, unchanged at SGL-2;

The rating outlook is stable.

RATINGS RATIONALE

The B2 Corporate Family Rating is supported by U.S. Concrete's position as one of the nation's largest ready-mixed concrete producers, its solid market position within the regions it serves and long standing customer relationships. Fundamentals are modestly improving in the private non-residential commercial and industrial market segments, which represent over half of the company's total revenue, as well as private residential market segment, which represents about 20% of revenue. Adjusted debt to EBITDA declined to 4.3x for the LTM September 30, 2014 from 5.8x at year end 2013 from improvement in EBITDA. Adjusted EBIT interest coverage also improved to 1.9x at LTM September 30, 2014 from 1.7x at year end 2013.

The rating also reflects the company's limited product diversity, where ready-mix concrete accounts for over 90% of revenues. Additionally, the rating reflects the competitive nature of the building materials industry, including weak pricing power of ready-mixed concrete products, exposure to input cost inflation, regional concentration, where Texas and California account for approximately 75% of revenues, and high fragmentation of the industry.

The company's SGL-2 Speculative Grade Liquidity rating reflects the company's good liquidity position over the next 12-18 months. U.S. Concrete's liquidity is supported by $94 million of cash on hand as of September 30, 2014, approximately $119 million of availability under its $175 million ABL, and our expectation that the company will generate modest free cash flow over the next 12 to 18 months. The revolver availability may be reduced should the company utilize borrowings for seasonal working capital needs or to pursue acquisitions. The company's ABL is governed by a springing fixed charge coverage ratio of 1.0x, which comes into effect if availability under the ABL is less than the greater of i) $14 million or ii) the lesser of 12.5% of a) the borrowing base or b) the total revolver availability. We believe the company will remain in compliance over the next 12 to 18 months. In our view, the company should not have a problem maintaining covenant compliance.

The stable outlook presumes that the company will demonstrate modest improvement in its performance and credit metrics supported by stability in its construction end markets.

The company's ratings could be upgraded if the company continues to grow its revenue base beyond $1 billion and to solidify its leading market position in markets served while construction end markets remain, at a minimum, stable. Additionally, the ratings could be upgraded should operating margins improve closer to 10%, EBIT interest coverage increases 2.0x, adjusted debt-to-EBITDA decreases below 3.5x, and the company maintains sufficient liquidity, all on a sustainable basis.

The ratings could be downgraded should the company's adjusted debt-to-EBITDA leverage remain above 5.0x and EBIT interest coverage falls below 1.5x for an extended period of time whether due to weak operating performance or aggressive acquisition activity. Additional pressure would occur if the company's operating margins declined below 4.0%.

The principal methodology used in these ratings was the Building Materials Industry published in September 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

You May Also Be Interested In

• IBM tumbles on soft Q1 revenue; announces HashiCorp $6.4bn acquisition
• Ribbon Communications Inc. Reports First Quarter 2024 Financial Results
• Matador Resources Company (MTDR) PT Raised to $78 at JPMorgan