Backyard Midco, Inc. -- Moody's upgrades Barrette Outdoor Living's CFR to B1, outlook remains stable

Rating Action: Moody's upgrades Barrette Outdoor Living's CFR to B1, outlook remains stableGlobal Credit Research - 11 Mar 2022New York, March 11, 2022 -- Moody's Investors Service (“Moody's”) upgraded the Corporate Family Rating (CFR) of Backyard Midco, Inc. (aka “Barrette Outdoor Living” or “Barrette”) to B1 from B2, the Probability of Default (PDR) to B1-PD from B2-PD and the senior secured first lien term loan to B1 from B2. The rating outlook is stable.The upgrade reflects Moody's expectations of continued improvement in credit metrics through 2023, including debt / EBITDA trending to 3.0x and EBITA / interest expense approaching 5.5x. The stable outlook reflects Moody's expectations that Barrette will continue to grow organically and through tack-on acquisitions while maintaining solid profitability in excess of 15%. The stable outlook also reflects maintenance of good liquidity. Upgrades: Issuer: Backyard Midco, Inc. Corporate Family Rating, Upgraded to B1 from B2Probability of Default Rating, Upgraded to B1-PD from B2-PDSenior Secured Bank Credit Facility, Upgraded to B1 (LGD4) from B2 (LGD4) Outlook Actions: Issuer: Backyard Midco, Inc. Outlook, Remains Stable RATINGS RATIONALE The B1 CFR reflects Barrette's solid financial profile, including strong EBITA margins, low leverage and high interest coverage. Moody's expects margin improvement over the next 12 to 18 months, largely driven by a combination of price and volume growth amid continued outsized demand for building products. This demand is supported by favorable fundamentals that support investment in home improvement, including the desire to increase home values. Furthermore, about 85% of Barrette's revenues are derived from the repair and remodel segment, where demand tends to be less volatile through market cycles as compared with new housing construction.These factors are counterbalanced by the company's reliance on The Home Depot and Lowe's, which collectively represent over 35% of the company's revenues. While Barrette holds a dominant market position in Home Depot and Lowe's, these retailers are high-volume purchasers with strong bargaining power, which could negatively impact the company's sales volumes or margins. The company has reduced exposure to these customers over the past year, from 45%, as it expands its channel distributions. Moody's ratings also consider Barrette's exposure to new housing construction, where demand tends to be more volatile through cycles. Finally, raw material cost inflation of resin and aluminum places some downward pressure on margins. Given the company's strong margin profile, however, Moody's does not expect cost inflation to meaningfully pressure leverage.Barrette's liquidity is expected to be good over the next 12 to 18 months and considers positive free cash flow of about $46 million in fiscal 2022 and $79 million in 2023. Liquidity will be supported by a $75 million asset-based revolver due 2025 that is expected to remain largely available.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if Barrette operates with debt / EBITDA sustained below 3.5x and free cash flow/ debt approaching 7.5%. An upgrade would also reflect an expanded scale while maintaining a conservative financial policy and ongoing positive trends in end markets continuing to support growth.The ratings could be downgraded if the company's debt / EBITDA is sustained above 4.5x or if EBITA / interest expense remains below 2.0x. A negative rating action would also reflect a failure to generate meaningful levels of free cash flow or the execution of a sizable debt-financed acquisition.The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287885. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Barrette Outdoor Living, headquartered in Ohio, is a leading manufacturer and distributor of wood-alternative fence and railing, with a growing presence in decking and other outdoor living products. For the twelve months ended September 30, 2021, the company generated roughly $707 million in revenue.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. 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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. Griselda Bisono Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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