Calling the planned merger by BMC with Stock Building Supply "credit positive," Moody's Investors Service on June 11 left unchanged BMC's B2 Corporate Family Rating and its B2-PD Probability of Default Rating. In a related action, Moody's also lowered BMC's senior secured notes rating to Caa1 from B3, noting that a planned increase of the merged company's asset-based revolving credit facility (unrated) to $450 million from BMC's current $215 million facility "reduces the amount of collateral to which holders of the secured notes have access.".
"BMC's B2 Corporate Family Rating reflects its debt leverage credit metrics despite the potential for merging with Stock in an all-stock transaction, since the deal structure could improve BMC's debt leverage metric by upwards of a half of a turn, which is a credit positive," Moody's statement said. "We estimate that Stock Building Supply has about $210 million in adjusted debt at 1Q15, of which $120 million is for operating lease commitments. BMC's adjusted debt-to-EBITDA [earnings before interest, taxes, depreciation, and amortization] was 4.1x as of March 31, 2015. Further, the combined entity will have sales of approximately $2.7 billion, creating a national distributor across 17 states with more product offerings utilized in domestic construction."
While optimistic that the creation of America's third-biggest pro-oriented dealer will make it easier for BMC to pay its debt, it said risks still remain, specifically citing new contracts with suppliers and merging staff and headquarters. The report does still expect continued growth from new housing construction over the next 12 to 18 months.
Moody's also acknowledges that BMC and Stock have commitments to increase the revolving credit facility to $450 million to help ease the merger, and that the outlook for this is stable.