S&P Global Ratings upgraded Griffon Corp.'s issuer credit rating to 'BB' from 'BB-' on Monday, citing the company's application of proceeds from recent divestitures to reduce leverage and the board's commitment to a more conservative financial policy. The agency said the stronger financial profile offsets the reduced scale and diversity that resulted from the divestitures.
At the issue level, S&P assigned a 'BBB-' rating to Griffon's proposed $500 million senior secured revolving credit facility due 2031 and gave it a recovery rating of '1', which indicates S&P's expectation of very high recovery between 90% and 100% in the event of a payment default. For the company's proposed $800 million senior unsecured notes due 2034, S&P assigned a 'BB' issue-level rating and a recovery rating of '4', reflecting an expected recovery range of roughly 30% to 50%.
The upgrade reflects S&P's assessment that Griffon will sustain adjusted leverage below 3x through the business cycle. Following repayment of the company's term loan, Griffon no longer faces mandatory debt amortization and has lower debt servicing costs, according to the agency. S&P said it expects Griffon to maintain adjusted leverage in the 1.5x to 2.5x range, consistent with the company's new public guidance.
Griffon applied proceeds from the recent sales of its AMES North America and Australasia businesses to pay down debt and is in the process of refinancing its existing borrowings. The ratings note highlights that the company's remaining brands - including Clopay and Hunter - are market leaders in the North American residential and commercial garage door markets.
S&P set a stable outlook for Griffon, reflecting its expectation that the company will keep leverage comfortably below 3x and maintain EBITDA margins above 25% over the next 12 to 24 months. The agency also said it will withdraw the ratings on Griffon's existing debt once the refinancing transaction closes.
Context and implications
The actions by S&P affect the company's capital structure and the prospective ratings on the new credit facilities and notes intended to replace existing debt. The recovery ratings assigned to the proposed instruments indicate materially different expected recoveries for secured versus unsecured creditors.