Beacon Roofing Supply Inc. announced that it has entered into a definitive agreement to purchase Allied Building Products Corp. from current owner CRH PLC for $2.625 billion in cash.



  • Beacon Roofing Supply Inc. announced that it has entered into a definitive agreement to purchase Allied Building Products Corp. from current owner CRH PLC for $2.625 billion in cash.
  • Beacon will finance the acquisition with $2.27 billion of new debt, including a new $970 million senior secured term loan facility, $1.3 billion in new senior unsecured notes (issued in the name Beacon Escrow Corp. ), additional borrowings under an upsized $1.3 billion asset-based lending (ABL) revolving credit facility, issuance of approximately $400 million in perpetual convertible preferred equity to affiliates of private equity sponsor Clayton Dubilier & Rice LLC (CD&R), and approximately $345 million of common equity issuance.
  • We expect Beacon's pro forma leverage for the transaction--prior to anticipated synergies and including Allied's lease--to be 6.1x (noting our treatment of Beacon's convertible preferred equity as debt per our criteria) from the previous 3.4x level at June 30, 2017.
  • We are affirming our 'BB-' corporate credit rating on Beacon and removing the rating from CreditWatch with negative implications. The outlook is negative.
  • We are also assigning our 'BB+' issue-level and '1' recovery ratings to Beacon's proposed $970 million senior secured term loan due 2024. In addition, we are assigning our 'B+' issue-level and '5' recovery ratings to the company's proposed $1.3 billion senior unsecured notes due 2025.
  • The negative outlook reflects elevated leverage for the transaction that is high for the current rating as well as our view of the potential for risks--including those related to acquisition integration--that could cause Beacon's leverage to remain elevated for a prolonged period.


  • At the same time, we assigned our 'BB+' issue-level rating to Beacon's 
    proposed $970 million senior secured term loan due 2024. The recovery rating 
    on the senior secured term loan is '1', indicating our expectation for very 
    high (90%-100%; rounded estimate: 95%) recovery for lenders in the event of a 
    default.
    
    We also assigned our 'B+' issue-level rating to the Beacon Escrow Corp.'s (a 
    wholly owned subsidiary of Beacon Roofing Supply Inc., which shall, upon the 
    consummation of the acquisition of Allied, be merged with and into Beacon with 
    Beacon as the surviving entity) proposed $1.3 billion senior unsecured notes 
    due 2025. The recovery rating on the senior unsecured notes is '5', indicating 
    our expectation for modest (10%-30%; rounded estimate: 15%) recovery for 
    lenders in the event of a default. 
    
    We do not rate Beacon's $1.3 billion ABL due 2023, nor the approximately $400 
    million of convertible preferred equity.
    
    The 'BB-' rating and negative outlook reflect our expectation that the 
    proposed transaction will raise Beacon's adjusted leverage--including $270 
    million of operating leases adjustments and $400 million of convertible 
    preferred equity, which we treat as debt--to 6.1x from the previous 3.4x at 
    June 30, 2017.
    
    The negative outlook reflects Beacon's elevated pro forma leverage of 
    6.1x--which we consider high for the rating--and our view of the potential for 
    integration risks which could keep Beacon's leverage elevated for a prolonged 
    periodand put further downward pressure on the rating. 
    
    We could lower the rating on Beacon if adjusted debt-to-EBITDA leverage did 
    not improve to less than 5.5x over the next 12 months. While we maintain a 
    favorable outlook for home construction and reroofing spending over the next 
    12 months, the combination of a U.S. housing recovery stall and lack of storm 
    activity and roof replacements could depress earnings over the next year, 
    resulting in stagnant leverage metrics. A more likely scenario could be the 
    company experiencing difficulties integrating its acquisition(s), increasing 
    operational costs, and EBITDA falling in excess of our forecast, causing 
    leverage to remain at or above 5.5x.
    
    We could revise the outlook on Beacon to stable over the next 12 months if it 
    were to realize synergies ahead of expectations and improve leverage metrics 
    to 5x at the end of its fiscal year ending September 2018. Although we believe 
    repair and remodeling spending will continue to grow in the mid-single digit 
    range and improve Beacon's EBITDA and leverage, more impactful earnings—either 
    by way of enhanced/expedited synergy realization or by high storm 
    volume--would likely be required to improve leverage to a level more in line 
    with the current rating.