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S&P Upgrades Boise Cascade (BCC) to 'BB-'; Notes Improved Operating Performance

November 26, 2014 12:41 PM EST

Standard & Poor's Ratings Services said it raised its corporate credit rating on Boise, Idaho-based Boise Cascade Co. (NYSE: BCC) to 'BB-' from 'B+'. The outlook is stable.

At the same time, in conjunction with the upgrade on the company, we raised our issue-level rating on the company's senior notes to 'BB-' from 'B+'. The recovery rating of '3' indicates our expectation that lenders will receive substantial recovery (50% to 70%) in the event of default.

The upgrade and stable outlook reflect Boise Cascade's improved operating performance and our expectation that the company will maintain credit measures that are strong for the current rating.

"The stable outlook reflects our view that Boise Cascade will maintain leverage measures that are good for the current rating, with debt to EBITDA of 2x to 2.5x over the next one to two years," said Standard & Poor's credit analyst Thomas Nadramia. "Based on our assumptions of slowly growing housing starts and improved construction activity in the U.S. for 2015 and 2016, we expect Boise to maintain FFO to debt of 25% or higher and interest coverage of 7.5x or higher, even in the case of modest acquisition activity and increased returns to shareholders."

We would view an upgrade as unlikely in the next year due to Boise Cascade's historically high volatility of earnings and credit measures driven by its participation in the highly cyclical construction markets. This volatility is a constraining factor on both the company's "weak" business risk profile and "aggressive" financial risk profile. However, we would consider an upgrade if Boise Cascade adds size, diversifies product lines, and reduces earnings volatility through acquisitions.

A significant disruption in the housing construction market would likely affect Boise Cascade's current leverage position and liquidity and possibly result in a downgrade. Specifically, we could lower our ratings if Boise Cascade's debt to EBITDA leverage exceeded 4.5x or if the company's liquidity were significantly reduced, leaving less cushion in the event of a housing downturn.



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