S&P Revises Business Risk Profile on PGT, Inc. (PGT) to 'Weak'; Affirms Ratings

Standard & Poor's Ratings Services said it affirmed its ratings, including its 'B+' corporate credit rating, on North Venice, Fla.-based PGT, Inc. (NYSE: PGT). The outlook is stable. We also revised our assessment of PGT's business risk profile to weak from fair and financial risk profile to significant from aggressive.

At the same time, we affirmed our 'BB-' issue-level rating (one notch higher than the corporate credit rating) on PGT's $235 million senior secured credit facility, composed of a $35 million revolving credit facility due 2019 and a $200 million term loan B due 2021. The '2' recovery rating on the facility remains unchanged, indicating our expectation for substantial (70% to 90%; lower end of the range) recovery in the event of payment default.

"The stable outlook reflects our expectation that operating performance will improve but credit measures will remain commensurate with a significant financial profile. Specifically, we expect FFO to debt in the 20% to 30% range," said Standard & Poor's credit analyst Maurice Austin.

We view a negative rating action as less likely given our outlook for housing markets; however, we could take such an action if the U.S. housing recovery stalls and EBITDA falls at least 45% below our 2015 forecast, causing leverage to weaken to above 5x. This could also occur in a recessionary environment. However, our economists only place a 10% to 15% probability on a new recession.

We view an upgrade as unlikely within the next year. Even if credit measures were to strengthen over the next 12 months, it is our opinion that credit ratios will be highly volatile through business cycles given the cyclicality of construction and PGT's high concentration in Florida, which has historically been prone to volatile real estate cycles.

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