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New York, August 17, 2022 -- Moody's Investors Service ("Moody's") upgraded WireCo WorldGroup Inc.'s ("WireCo") corporate family rating (CFR) to B1 from B2 and probability of default rating (PDR) to B1-PD from B2-PD. Moody's also upgraded the company's senior secured term loan to B1 from B2. The rating outlook is stable.
The upgrade reflects WireCo's efforts during the past several years to improve its product mix by exiting from low-margin products, and gradually shift away from volatile energy markets, which have historically squeezed the company's profits during downturns. The upgrade also considers the company's track record in passing through higher input costs led by steel through improved pricing strategy, processes and controls around price negotiations and reflecting surcharge mechanism into contracts, which have also improved its margins in recent quarters. WireCo has also been managing its cost base more effectively, with meaningful cost cuts and targeted investments for strategic initiatives.
"We also expect WireCo's tighter control of working capital will help secure positive free cash flow in coming years," said Motoki Yanase, Vice President and Senior Credit Officer at Moody's.
"The stable outlook reflects our view that these efforts have improved WireCo's fundamental profitability and cash flow generation, and positioned the company to better withstand the cyclicality in some of its end markets," added Yanase.
....LT Corporate Family Rating, Upgraded to B1 from B2
....Probability of Default Rating, Upgraded to B1-PD from B2-PD
....Senior Secured Bank Credit Facility, Upgraded to B1 (LGD4) from B2 (LGD4)
WireCo's B1 corporate family rating reflects the company's strong niche in wire products, including steel ropes, synthetic ropes and plastic molding and sheets in the global markets. The rating further reflects WireCo's diversified end markets to various user industries, its geographic diversification across the United States, Europe, South American, and Asia, and solid demand in its end markets, including from mission critical steel wire roping used on cranes and other industrial applications, and synthetic rope used in fishing, maritime, and offshore oil & gas and renewable energy markets. Moody's also recognizes improvement in WireCo's profitability over the past several years, which was achieved through the demand recovery coupled with the company's efforts to invest in high-margin and exit from low-margin products; transform its pricing strategy, processes, and controls driving above-inflationary price increases; and manage its cost base.
These credit strengths are counterbalanced with the cyclicality in some of WireCo's end markets, led by the volatile oil and gas sector, exposure to raw material costs (mainly steel), and competition in the fragmented global steel ropes and wire markets.
WireCo has good liquidity that covers its cash outflow for the next 12 months as of March 2022. The company had $28 million of cash on hand at the end of March and $50 million available under its $115 million ABL facility expiring in 2026. Moody's projects about $20 million in free cash flow generation in 2022 and over $30 million in 2023, which will facilitate increased availability on the ABL as outstanding borrowings are repaid.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if the business' operating profile further improves such that it can better cope with inherent end market cyclicality, along with better credit metrics. Specifically, Moody's would upgrade the ratings if debt/EBITDA is below 3.5x, free cash flow/debt is above 10% and EBITA/interest expense is above 3.0x.
Moody's could downgrade the ratings if industry conditions turn downward and negatively affect WireCo's profit and cash flow generation. Pressure on the ratings could also result if there is implementation of aggressive financial policy actions including large debt financed acquisitions or shareholder distributions. Specifically, Moody's would downgrade the ratings if debt/EBITDA is above 4.5x, free cash flow/debt is below 5.0%, or EBITA/interest expense is below 2.0x.
Headquartered in Prairie Village, Kansas, WireCo WorldGroup Inc., is a global manufacturer and seller of wire ropes, high-tech synthetic ropes, electromechanical cable, and other related products. The company sells into diverse industries including infrastructure, industrial, energy, mining, maritime and fishing. The company generated about $706 million revenue for the twelve months that ended March 31, 2022. WireCo is owned by affiliates of Onex Corporation and Paine Schwartz Partners LLC.
The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
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Motoki Yanase VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
Gretchen French Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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