Research: Rating Action: Moody’s assigns Generac’s new sr sec revolver and term loan Ba1 rating

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New York, June 30, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a Ba1 rating to Generac Power Systems, Inc.’s (“Generac”) new senior revolving credit facility and term loan. All of Generac’s other ratings are unchanged at this time, including the Corporate Family (CFR) Ba1 rating, Ba1-PD Probability of Default rating and Ba1 Senior Secured Term Loan B rating. The outlook is stable. The company’s speculative liquidity rating is also unchanged at SGL-1.

The new $750 million Senior Secured Term Loan A due 2027 will be used to repay $285 million of borrowings under the Asset-Backed Loan (ABL) facility, $250 million of term loans B (pro forma principal of $530 million outstanding) and add approximately $200 million to the company’s free cash after fees and expenses (pro forma cash of approximately $400 million as of March 31, 2022) . As part of this transaction, Generac will terminate its existing $500 million ABL and set up a new $1.25 billion revolving credit facility expiring in 2027. The new revolving credit facility will not be drawn at the closing of the transaction.

“The transaction enhances Generac’s already strong liquidity by adding more than $200 million of liquidity and providing access to an additional $725 million of external liquidity,” said Brian Silver, vice president – ​​principal analyst at Moody’s. .

..Issuer: Generac Power Systems, Inc.

Duties:

…. Secured Senior Multi-Currency Revolving Credit Facility, Assigned Ba1 (LGD3)

…. Senior Secured Senior A Term Loan, Assigned Ba1 (LGD3)

LGD adjustments:

…. Senior secured bank credit facility, adjusted to (LGD3) from (LGD4)

RATINGS RATIONALE

Generac’s Ba1 rating reflects the company’s strong position and brand strength in the North American residential and commercial and industrial (C&I) standby generator market. The company also has good scale with over $4 billion in annual revenue, is experiencing strong organic revenue growth driven by strong demand for its products, and has low Moody’s adjusted leverage of 1.4x debt to EBITDA. Generac’s ratings also take into account the company’s very high product concentration and heavy reliance on the North American market. Generac may also become more shareholder-friendly over time, but currently does not pay dividends.

Although revenue growth is robust, Generac is under pressure on its margins due to supply chain challenges as well as rising logistics and input costs. Moody’s adjusted EBITDA margin decreased to 17.5% in 1Q22 from 26.9% in 1Q21. Moody’s expects sequential margin expansion over the next few quarters resulting from the implementation of several pricing actions and expects full-year 2022 EBITDA margin to decline to approximately 20% , compared to around 23.6% for 2021. The Capex/sales ratio should also remain between 3.0% – 3.5%, allowing Generac to generate solid free cash flow.

Moody’s expects Generac to make small to medium-sized acquisitions with an international presence or competitive advantage from a technological or environmental perspective. Specifically, Moody’s expects Generac to continue to invest in the rapidly growing clean energy market and strengthen its product diversity.

The stable outlook reflects Moody’s expectation that Generac will continue to grow while generating strong free cash flow and maintaining financial leverage below 2.0x debt to EBITDA.

The SGL-1 speculative liquidity rating reflects Moody’s view that Generac will have very good liquidity over the next year. Liquidity is supported by approximately $400 million of pro forma cash as of March 31, 2022, Moody’s positive free cash flow expectations and access to a new $1.25 billion revolving credit facility.

Generac Power Systems, Inc. (Generac), headquartered in Waukesha, WI, is a leading designer and manufacturer of power technology solutions, including a wide range of power generation equipment, energy storage systems and other power products for the residential, commercial and industrial sectors. markets. The company employs more than 9,000 employees and its products are sold worldwide through independent dealers, distributors, retailers, wholesalers, equipment rental companies, e-commerce partners and, in some cases directly to end users.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The ratings could be improved if Generac can continue to grow and improve its product diversity. Moody’s would also expect management to make a long-term commitment to conservative financial policies consistent with stable credit metrics, and for the company to achieve a capital structure that allows for maximum financial flexibility.

Ratings could be downgraded if the debt/EBITDA ratio approaches 3x or if the EBITDA margin deteriorates and remains below 20%. In addition, the rating could be downgraded in the event of a move towards more aggressive financial practices, including a change in shareholder friendliness or a large leveraged acquisition, or in the event of a material deterioration in liquidity.

The main methodology used in these ratings is Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Generac Power Systems, Inc. (Generac), headquartered in Waukesha, WI, is a leading designer and manufacturer of power technology solutions, including a wide range of power generation equipment, energy storage systems and other power products for the residential, commercial and industrial sectors. markets. The company employs approximately 9,000 employees and its products are sold worldwide through independent dealers, distributors, retailers, wholesalers, equipment rental companies, e-commerce partners and, in some cases directly to end users.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Brian Silver, CFA
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Dean Diaz
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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