Rating Action: Moody's affirms Matthews' Ba3 CFR; outlook stableGlobal Credit Research - 10 Dec 2021New York, December 10, 2021 -- Moody's Investors Service ("Moody's") has affirmed Matthews International Corporation's ("Matthews") Ba3 Corporate Family Rating. Concurrently, Moody's affirmed the company's Ba3-PD Probability of Default Rating and B2 rating on the senior unsecured notes. The company's Speculative Grade Liquidity rating is unchanged at SGL-2, signifying good liquidity. The outlook remains stable.The following ratings/assessments are affected by today's action:Ratings Affirmed:..Issuer: Matthews International Corporation.... Corporate Family Rating, Affirmed Ba3.... Probability of Default Rating, Affirmed Ba3-PD....Senior Unsecured Global Notes, Affirmed B2 (LGD5)Outlook Actions:..Issuer: Matthews International Corporation....Outlook, Remains StableRATINGS RATIONALEThe Ba3 Corporate Family Rating is supported by Matthews' leading market position in the memorialization and brand solutions industries, consistent free cash flow generation and generally stable demand for its caskets and funeral products. The ratings also consider the company's favorable position to handle positive trends on the cremation side, as the industry experiences a long-term trend gravitating away from casketed deaths. Moody's recognizes the company's focus on decreasing its financial leverage. As of FY 2021 the company sits at 4.0x (Moody's adjusted for operating leases and pensions) and is expected to delever even further after pension settlements are realized. Moody's also takes into consideration the high growth potential from Matthews' Industrial Technologies segment, specifically the energy storage business (moved from SGK), warehouse automation and its new Inkjet product.Matthews' credit profile is constrained by Moody's expectations of revenue contraction in the memorialization business (46% of FY 2021 revenue). Over the past few quarters, the company has experienced substantial revenue growth from the sales of caskets, cemetery memorial products and cremation equipment, primarily driven by COVID. Going forward, as vaccination increases and COVID related deaths diminish, Moody's expects this segment to decline in the low-single-digits. On the SGK side (37% of FY 2021), although improving, the company still experiences headwinds in its retail-based business due to COVID, which Moody's expects will persist at least in the short term. Moody's also takes into consideration Matthews' exposure to commodity prices such as steel, lumber and bronze which were in high demand through the past few months. Higher costs in labor and freight have also impacted the company negatively.The stable outlook is based on Moody's expectation that the company will grow in the low single digits, primarily driven by expansion in the Industrial Technologies segment, while proactively repaying debt such that debt/EBITDA improves to below 4.0x over the next 12-18 months.The SGL-2 rating reflects Moody's expectations for good liquidity over the next 12-18 months. Matthew's will maintain ample cash reserves and generate free cash flow in the $55 to $75 million range. Liquidity will also be supported by good revolver availability and adequate headroom under its financial maintenance covenants.The B2 rating on Matthew's senior unsecured notes due 2025, two notches below the Ba3 Corporate Family Rating, results from their subordination to the company's secured debt.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's would consider an upgrade if Matthews meaningfully reduces debt/EBITDA, and sustains it under 3.75x, while increasing free cash flow to debt above 15% (all metrics are Moody's adjusted). Concurrently, sustained revenue and margin expansion on both memorialization and SKG segments would generate upward pressure.Conversely, Moody's would consider downgrading the ratings if the company adopts a more aggressive financial policy including debt-financed acquisitions or debt financed share repurchases or dividends. Also, the ratings would have downwards pressure if Moody's adjusted debt/EBITDA is sustained above 4.75x, deterioration of liquidity and free cash flow, as well as material revenue or margin contraction.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Matthews is a designer, manufacturer and marketer of memorialization products, brand solutions and industrial automation solutions based in Pittsburgh, PA. The company operates in three segments: SGK Brand Solutions, which provides brand management and packaging solutions mainly for consumer and retail customers; Memorialization, which provides bronze and granite memorials and other memorialization products, caskets, and cremation and incineration equipment and Industrial Technologies segment, which manufactures energy storage solutions for the electric vehicle market, marking and coding equipment and consumables, industrial automation products and order fulfillment systems for customers across sector. Annual revenue is about $1.6 billion. The company is publicly traded (NASDAQ: MATW.)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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Otavio Caproni Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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