Research: Rating Action: Moody’s downgrades Signal Parent (Interior Logic) CFR from B3 to B2, outlook stable

Approximately $1.1 billion of debt securities affected

New York, July 20, 2022 — Moody’s Investors Service (“Moody’s”) has downgraded the family of companies rating of Signal Parent, Inc. (Interior Logic Group (“ILG”)) to B3 from B2, the rating of probability of default at B3-PD from B2-PD, the rating of the company’s senior term loan due 2028 at B2 from B1 and the rating of its senior unsecured notes due 2029 at Caa2 from Caa1. The outlook changed from negative to stable.

The rating action reflects continued high leverage and operating margin pressure amid an expected modest weakening in end market conditions. Achieving synergies and cost savings after the LBO transaction and the acquisition of RDS in 2021 takes time, which prevents the company from deleveraging its balance sheet. Over the next 12 to 18 months, ILG’s credit metrics are expected to improve slightly given expected growth due to strong backlog and operating pricing strategies. While this bodes well for ILG’s profitability, leverage metrics will remain at levels consistent with B3 CFR.

The following scoring actions were taken:

Downgrades:

..Issuer: Signal Parent, Inc.

…. Corporate family ranking, downgraded from B2 to B3

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

….Senior Secured 1st Lien Bank Credit Facility, downgraded to B2 (LGD3) from B1 (LGD3)

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

Outlook Actions:

..Issuer: Signal Parent, Inc.

….Outlook, changed to stable from negative

RATINGS RATIONALE

The B3 rating of ILG’s family of companies is limited by: 1) the company’s high and persistent leverage relative to EBITDA; 2) relatively low operating margin inherent in the business model and margin pressure experienced recently due to the inflationary environment and increases in input costs that have not been offset by price increases; 3) a global acquisition strategy and the presence of integration risks and potential increases in leverage; 4) risks of owning private equity, including financial policy that resulted in significant balance sheet leverage in a 2021 buyout transaction and potential shareholder-friendly actions, and 5) volatility and cyclicality inherent in the residential end markets served.

At the same time, the credit profile is supported by the following key factors: 1) significant size and scale, with revenues of approximately $2.0 billion and a national footprint; 2) a strong competitive position in a fragmented market for installation and design studio services and long-term customer relationships with homebuilders; 3) a history of growth through acquisitions; 4) good liquidity profile; and 5) Moody’s expects strong, albeit slowing, final market conditions.

The stable outlook reflects Moody’s expectation that the company will maintain a good liquidity profile, generate positive free cash flow and slightly improve its operating margin through pricing strategies over the next 12 to 18 months.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ratings could be upgraded if company improves operating margin, sustainably reduces debt to EBITDA below 5.5x, maintains conservative financial policies on leverage, equity and acquisitions favorable to shareholders, and maintains good liquidity and positive free cash flow.

Ratings could be downgraded if company debt to EBITDA is maintained above 6.5x, EBITA to interest coverage falls below 1.5x, liquidity dwindles weakens, free cash flow becomes negative or market conditions deteriorate, resulting in lower revenues and operating margin.

The main methodology used in these ratings is Distribution & Supply Chain Services Industry published in June 2018 and available at https://ratings.moodys.com/api/rmc-documents/55403. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Interior Logic Group, headquartered in Irvine, CA, is a leading national provider of interior design and installation center management services. The Blackstone Group is the company’s financial sponsor. In the last twelve months ended March 31, 2022, the company generated approximately $2.0 billion in revenue.

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 has been 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.

Natalia Gluschuk
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service, Inc.
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Gretchen French
Associate General Manager
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Customer service: 1 212 553 1653

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Betty K. Park