Research: Action Rating: Moody’s Lowers Conair Holdings LLC’s CFR to B3, Outlook Remains Stable

New York, May 31, 2022 — Moody’s Investors Service (“Moody’s”) has downgraded Conair Holdings LLC’s (Conair) Corporate Family Rating (CFR) to B3 from B2, Probability of Default Rating to B3 -PD from B2-PD, and senior secured debt rating to B3 from B1. The rating outlook is stable.

The downward revisions reflect Moody’s expectations that high financial leverage and lower than expected profitability over the next 12-18 months will continue as industry headwinds – high material and freight costs , supply chain disruptions and slowing consumer demand – are expected to extend beyond 2022. Appliance inventory at retailers is contributing to lower orders, which is hurting Conair’s earnings. Moody’s expects earnings to improve once inventory levels normalize, but Conair’s EBITDA margin is expected to be lower in percentage to mid- to high-single digits by the end of 2022, compared to to Moody’s previous expectations of low to average teens. Negative free cash flow since the 2021 leveraged buyout is also driving higher-than-expected debt, which won’t reverse even when earnings start to improve. As a result, Moody’s expects the company’s debt/EBITDA leverage to remain elevated above 7x at the end of fiscal year 31 December 2022, compared to 6x as of fiscal year 2021 and pro forma for the recapitalization operation.

Liquidity is currently adequate, supported by Moody’s expectations of positive free cash flow over the next 12 months as the company looks to monetize its historically high inventory balances in the second half of the year. Moody’s anticipates the proceeds will likely be used for debt reduction or reinvestment in the business. Liquidity is limited by high borrowings on the $400 million ABL revolving credit facility, which Conair uses to fund negative free cash flow and seasonal working capital needs.

The downgrade of the term loan from B3 to B1 further reflects the higher level of senior secured borrowing due to the heavy use of the ABL revolver.

The following ratings/ratings are affected by today’s action:

Degraded notes:

..Issuer: Conair Holdings LLC

…. Corporate family ranking, downgraded from B2 to B3

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

….Senior secured bank credit facility, downgraded from B1 (LGD3) to B3 (LGD3)

Outlook Actions:

..Issuer: Conair Holdings LLC

….Outlook remains stable

RATINGS RATIONALE

Conair’s B3 CFR reflects its well-known portfolio of brands in the personal care and culinary categories with leading market positions and good channel diversification. Although discretionary in nature, the company’s products show relatively stable demand during cyclical downturns compared to other sustainable companies. Key credit concerns include high financial leverage, slowing consumer demand and oversupply from channels, leading to higher than expected inventory levels.

Credit metrics are expected to remain weak through 2022 as supply chain issues combined with weaker consumer demand for culinary and personal care products weigh on profitability. New product launches will benefit volumes combined with targeted price increases which are expected to increase margins in the second half of 2022 with EBIT margin, including Moody’s standard adjustments, improving to mid to high digits by the end of 2022. end of 2022. remain high for the rating, but our expectation of positive free cash flow to be applied to debt repayment should lead to improved leverage in 2023.

Conair’s liquidity is supported by cash on hand as of December 31, 2021 of approximately $86 million. The $400 million ABL had $71 million available as of December 31, 2021, after clearing letters of credit and $327 million in borrowings at the end of 2021. The facility expires in May 2026. Moody’s expects 50 to $80 million in annual free cash flow in 2022 and 2023, notably boosted by destocking. However, an inability to reduce inventory balances, higher promotional offers or a lack of improvement in transportation costs could put further pressure on cash.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The stable outlook reflects Moody’s expectations that Conair will improve revenue and EBITDA margin through pricing initiatives, lower freight costs and modest promotional activity. The stable outlook also reflects Moody’s expectation that the company will generate at least $50 million in annual free cash flow, supported over the next six months by inventory monetization.

The ratings could be improved if the company reduces its financial leverage and maintains good sales growth and improves the EBITDA margin. A sustained debt to EBITDA ratio of 7.0x or less is required for an upgrade. In addition, strengthening liquidity is also important for an upgrade, including a sustainable and comfortably positive free cash flow and a reduction in revolving borrowing.

Ratings could be downgraded if the business’ operating performance, including EBITDA margin, does not improve, resulting in lower than expected free cash flow or EBITDA-capex/interest coverage maintained below 1 .5x. The erosion of the liquidity position could also lead to a deterioration.

The main methodology used in these ratings was Consumer Durables published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74987. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Conair Holdings LLC is a designer, manufacturer and marketer of branded personal care appliances, small kitchen appliances and cookware, commercial catering equipment, professional hair care and beauty products, brushes hair and hair care accessories, cosmetic and storage bags and travel accessories. The company’s main brands are Cuisinart, Conair, Scunci, Babyliss and Waring. Following a leveraged buyout in May 2021, the company is majority-owned by a private equity firm, American Securities LLC, with annual revenue of approximately $2.4 billion.

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 disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

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 was 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.

Maria Iarricio
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
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Customer service: 1 212 553 1653

John E. Puchalla, CFA
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
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