Service Corp's (SCI) Corporate Family Rating Raised to 'Ba2' by Moody's

Moody's Investors Service ("Moody's") upgraded certain of Service Corporation International's (NYSE: SCI) ratings. The Corporate Family rating ("CFR") was upgraded to Ba2 from Ba3, the Probability of Default rating ("PDR") was upgraded to Ba2-PD from Ba3-PD and the senior unsecured (unguaranteed) ratings were upgraded to Ba3 from B1. The senior unsecured (guaranteed) ratings and Speculative Grade Liquidity rating ("SGL") were affirmed at Baa3 and SGL-2, respectively. The rating outlook is stable.

Issuer: Service Corporation International

Upgrades:

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

....Senior Unsecured (unguaranteed) Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD4)

Affirmations:

....Senior Unsecured (guaranteed) Bank Credit Facility, Affirmed Baa3 (LGD2)

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

Outlook:

....Outlook, Remains Stable

RATINGS RATIONALE

"The upgrade to Ba2 reflects SCI's success in integrating Stewart Enterprises and achieving significant cost synergies, steady deleveraging since the closing of the acquisition and Moody's expectations for continued, steady cash flow generation," said Edmond DeForest, Moody's Senior Credit Officer.

The Ba2 rating reflects SCI's position as the leading death care provider in North America, supported by a broadly diversified portfolio of funeral service locations and cemetery properties, unique scale advantages and a $9 billion revenue backlog. Moody's expects SCI to maintain debt to EBITDA in a range of about 3.7 to 4.0 times, peaking perhaps above 4 when it makes acquisitions. Moody's anticipates modest 2% to 4% same-store revenue growth and free cash flow to debt of about 6% to 8%, pressured by customer shifts toward cremation and lower priced funeral services. Additional support comes from an aging baby boom population and assets including real estate holdings, investment trusts and insurance contracts that provide tangible coverage of debt and other liabilities. Moody's anticipates solid EBITA margins of over 20%, but for free cash flow available to reduce debt to be limited by the need to invest in infrastructure leading to over $150 million of annual capital expenditures, the regular quarterly dividend of about $80 million a year and Moody's expectations that SCI will be a full cash tax payer by 2016. The risk that shareholder desires for high cash returns from dividends and share repurchases could be satisfied through debt incurrence also weighs on the rating.

All financial metrics reflect Moody's standard adjustments.

The Speculative Grade Liquidity rating of SGL-2 reflects Moody's assessment of SCI's liquidity as good, driven by expectations for over $100 million of cash, about $250 million of free cash flow and at least $200 million of availability under its revolving credit facility expiring in 2018.

The stable ratings outlook reflects Moody's expectations for limited debt reduction as most free cash flow will be applied toward acquisitions and shareholder returns. The ratings could be upgraded if profitable revenue growth can be maintained above 4% per year and Moody's expects sustained debt to EBITDA around 3 times and free cash flow to debt above 10%. Lower ratings are possible if Moody's expects 1) lower revenue growth; 2) profitability as measured by EBITA margins will remain below 17%; 3) shareholder friendly financial policies; or 4) less than good liquidity. If Moody's anticipates debt to EBITDA will be maintained above 4.5 times or free cash flow to debt will remain below 6%, lower ratings are possible.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 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.

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