Rating Action: Moody's affirms Instant Brands Ba3 CFR; rates new first lien term loan Ba3Global Credit Research - 22 Mar 2021New York, March 22, 2021 -- Moody's Investors Service, ("Moody's") affirmed the ratings of Instant Brands Holdings Inc. (Instant Brands) including the company's Corporate Family Rating (CFR) at Ba3 and Probability of Default Rating at Ba3-PD. At the same time, Moody's assigned a Ba3 rating to the company's proposed new $450 million first lien term loan due 2028. The outlook is stable. The Ba3 rating on the company's existing first lien term loan due 2024 is unchanged, and will be withdrawn concurrent with the anticipated repayment of this debt obligation.Net proceeds from the proposed $450 million first lien term loan will be used to refinanced approximately $294 million of existing debt, including a $100 million seller note issued in conjunction with the March 2019 acquisition of Instant Brands, and to fund a $245 million dividend distribution to shareholders. Moody's estimates pro forma for the proposed refinancing transaction Instant Brands' debt/EBITDA leverage at 3.9x for the fiscal year ending December 31, 2020.Today's ratings affirmation reflects Moody's expectations that Instant Brands' debt/EBITDA leverage will decline to around 3.0x by fiscal year end 2021, mainly driven by earnings growth. Moody's expects the company's revenue will grow in the mid-single digits along with EBITDA margin expansion, as the company laps a challenging first half of 2020, and margins benefit from management's recent pricing and inventory management initiatives.The Ba3 assigned to the proposed $450 million first lien term loan, same as the Ba3 CFR, reflects that this facility represents the preponderance of the pro forma capital structure.Assignments:..Issuer: Instant Brands Holdings Inc.....Senior Secured 1st Lien Term Loan Bank Credit Facility, Assigned Ba3 (LGD4)Affirmations:..Issuer: Instant Brands Holdings Inc..... Probability of Default Rating, Affirmed Ba3-PD.... Corporate Family Rating, Affirmed Ba3Outlooks:..Issuer: Instant Brands Holdings Inc......Outlook, is StableRATINGS RATIONALEInstant Brands' Ba3 credit profile reflects the company's well-recognized portfolio of housewares and small kitchen appliance brands, global footprint, and good diversification of its distribution channels. During the coronavirus outbreak the company has experienced heightened demand for its products because of ongoing stay at home and social distancing measures. Moody's expects continued good consumer demand for kitchen electronics and housewares at least through the first half of 2021 that will support solid revenue and earnings growth, and positive free cash flow in the $55-$60 million range. As a result, Moody's projects Instant Brands' debt/EBITDA leverage will decline to around 3.0x in fiscal year 2021. The company's good liquidity is supported by Moody's expectations of solid free cash flow on an annual basis, access to a $250 million ABL revolving facility due 2025, and lack of near term maturity until the revolver expires.Instant Brands' credit profile also reflects the company's relatively modest scale with annual revenue of around $1.0 billion, its moderately high debt/EBITDA leverage at around 3.9x pro forma for the refinancing transaction, and its elevated operational risks due to legacy Corelle business high fixed costs. The legacy Corelle Brands' business operates in the cyclical and mature housewares category, and it's highly reliant on a single, specialized manufacturing facility for its namesake brand. An extended supply chain disruption from situations such as the coronavirus would adversely affect the company's revenue and EBITDA. The legacy Instant Brands business operates in the highly competitive small kitchen appliance market, which requires continued product innovation and differentiation, and exposes the company to changes in consumer tastes. Governance factors relate to the company's ownership by a private equity sponsor, which increases the risk of shareholder friendly financial policies, which is partially mitigated by the company's history of debt repayment using excess free cash flows resulting in moderate financial leverage relative to that typical of private equity owned companies.The stable outlook reflects Moody's expectations for continued good consumer demand for the company's products will support solid revenue and earnings growth, resulting in good free cash flow generation and debt/EBITDA declining to around 3.0x by fiscal year end 2021.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of Instant Brands from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The consumer durables industry is one of the sectors most meaningfully affected by the coronavirus because of exposure to discretionary spending.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if the company increases its revenue scale, demonstrates consistent organic revenue growth and operating margin expansion, while debt/EBITDA is sustained below 2.5x, and EBITA/interest expense above 4.5x. A ratings upgrade will also require the company to maintain at least good liquidity, and Moody's expectations of balanced financial policies that support credit metrics at those levels.Ratings could be downgraded if the company's operating performance deteriorates with consistent revenue declines or profit margin deterioration, or if debt/EBITDA is sustained above 3.5x, of if liquidity weakens following the company's failing to generate free cash flows as anticipated or the ABL revolver is drawn more than expected. Ratings could also be downgraded if financial policies become more aggressive, including undertaking a large debt-financed acquisition of dividend distribution that materially increases financial leverage.The proposed first lien credit agreement contains provisions for incremental debt capacity up to the greater of $152.0 million and 100% of consolidated pro forma trailing four quarter consolidated EBITDA, plus unused amounts under the general debt basket, plus additional amounts subject to a pro forma first lien net leverage requirement not to exceed first lien net leverage at close (if pari passu secured). The incremental can also be used to finance a permitted acquisition or investment, with a requirement not to increase first lien net leverage on a pro forma basis. Amounts up to the greater of $76 million and 50% of consolidated EBITDA may be incurred with an earlier maturity date than the initial term loans. The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities, subject to "blocker" provisions preventing unrestricted subsidiaries from owning or holding exclusive rights in intellectual property that is material to the business of the company and its restricted subsidiaries, taken as a whole. Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees subject to protective provisions which only permit guarantee releases if the company has made an investment in such subsidiary in the amount of its outstanding investment at such time. The above are proposed terms and the final terms of the credit agreement can be materially different.Headquartered in Downer's Grove, IL, Instant Brands Holdings Inc. manufactures, designs and markets dinnerware, bakeware, kitchen tools, range-top cookware, storage and cutlery products. In March 2019, the company acquired Instant Brands, manufacturer of the Instant Pot line of products. The company's most notable brands include Corelle, Pyrex, Corningware, Snapware, Visions, Chicago Cutlery, and Instant. The company markets its products primarily in the US, Canada, and Asia-Pacific region and sells into several channels including mass merchants, department stores, specialty retailers and the Internet, among others. Instant Brands was acquired by Cornell Capital in May 2017. Annual revenue is around $1.0 billion.The principal methodology used in these ratings was Consumer Durables Industry published in April 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060509. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Oliver Alcantara Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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