Moody's downgrades Hoffmaster

Moody's Investors Service said it downgraded Hoffmaster Group, Inc.'s corporate family rating to Caa2 from Caa1, its probability of default rating to Caa2-PD from Caa1-PD, the company’s senior secured first-lien revolving credit facility and senior secured first-lien term loan ratings to Caa1 from B3 and its senior secured second-lien term loan to Ca from Caa3.

“The downgrades reflect that Hoffmaster's high financial leverage and weak free cash flow will make it challenging to refinance the 2023 revolver and term loan maturities. Hoffmaster's financial leverage remains elevated at above 10x debt to EBITDA, hurt by lower EBITA margin due to significant raw materials cost increases and labor headwinds even at a time when demand and revenue are sharply recovering.

“Moreover, the company will need to invest in working capital to support revenue growth, which limits free cash flow generation in the next 12-18 months. Hoffmaster has been aggressively implementing pricing increases to offset cost pressures, and is having success passing on costs through pricing actions. However, Moody's expects the pricing actions may affect volume and there can be a time lag to pass on the cost increases,” the agency said in a press release.

The outlook is negative.

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