Research: Rating Action: Moody’s Downgrades Werner’s CFR to B3; negative outlook

Approximately $610 million of rated debt

New York, June 21, 2022 — Moody’s Investor Service (“Moody’s”) has downgraded the ratings of Werner FinCo LP (“Werner”), including its corporate family rating (CFR) to B3 from B2 and its rating from probability of default (PDR) at B3 -PD from B2-PD. Moody’s also downgraded the secured bank credit facility from B2 to B1 and the unsecured notes at Caa2 from Caa1. The outlook is negative.

“The ratings downgrade and negative outlook are driven by Werner’s very high leverage due to pressure on margins from high input costs including aluminum, steel and freight. Lower than expected working capital usage has significantly reduced liquidity,” said Justin Remsen, Assistant Vice President at Moody’s.

“Price increases and supply chain improvements will help, but sustainable improvements in profitability and cash flow will be a challenge,” Remsen added.

Degraded notes:

..Issuer: Werner FinCo LP

….Corporate Family Rating, downgraded from B2 to B3

….Default scoring probability, downgraded to B3-PD from B2-PD

….Senior secured term loan, downgraded from B2 (LGD3) to B1 (LGD3)

….Senior regular unsecured bond/debenture, downgraded from Caa2 (LGD5) to Caa1 (LGD5)

Outlook Actions:

..Issuer: Werner FinCo LP

….Outlook, changed to negative from stable

RATINGS RATIONALE

Werner’s B3 CFR reflects Moody’s expectation that over the next 12-18 months the company will maintain high leverage exceeding our downgrade forecast to 6.25x for the B2 CFR. Our forward-looking view assumes that the company’s indebtedness will grow from 9.4x for the twelve months ending March 2022 thanks to the realization of a price increase, the coverage of the main input costs and the efficiency of manufacturing. Moody’s expects free cash flow to improve from negative $104 million for the year to March 2022, but will remain slightly negative for 2022 given margins under pressure, interest expense high and working capital utilization with higher inventory costs and growing receivables.

The rating also reflects cyclical end markets, where the residential construction market can contract quickly and have an acute impact on the company’s financial profile. The company also has a customer concentration with The Home Depot, Inc. (A2 stable) and Lowe’s Companies, Inc. (Baa1 stable) accounting for a significant portion of sales. These retailers are high volume buyers with strong bargaining power. Highlights include the company’s market-leading position for its products, particularly Werner-branded ladders. The company also has a proven track record in developing innovative products that meet market needs.

Moody’s expects Werner to have low liquidity over the next 12 to 18 months. As of March 31, 2022, Werner had $36 million in total liquidity, including $6 million in cash and $30 available as part of the company’s $130 million Asset-Based Lending (ABL) revolver. The company’s ABL matures 91 days before the term loan matures in July 2024. Moody’s forecasts negative free cash flow of approximately $10 million in 2022 and positive free cash flow of 15 million in 2023, with improvements in margin and working capital leading to a modest recovery in cash flow. Moody’s expects Werner to maintain an adequate cushion within the ABL fixed charge coverage ratio over the next 12 months.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ratings could be upgraded if operational performance improves significantly, the company reduces debt/EBITDA below 6x, EBITA/interest above 2x, and strengthens liquidity with free cash flow on debt above 5% and reduced revolving loans.

Ratings could be downgraded if operational performance does not improve, liquidity deteriorates, including negative cash flow or increased refinancing risk, EBITA/interest falls below 1.0 or debt/EBITDA is greater than 7x.

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.

Werner, headquartered in Itasda, Illinois, is a global manufacturer and marketer of ladders, jobsite storage products, truck and van tool storage and other equipment used in the construction industry. For the twelve months ending March 2022, the company had revenue of approximately $1.3 billion. Triton Partners, through its affiliates, is the principal owner of Werner.

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 information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information 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.

justin remsen
Assistant Vice President – 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

Gretchen French
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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