Ranking Motion: Moody’s assigns B2 CFR to Snap One Holdings Corp.; outlook stableGlobal Credit score Analysis – 25 Jan 2022New York, January 25, 2022 — Moody’s Buyers Service (“Moody’s”) assigned a B2 company household ranking (CFR) and B2-PD chance of default ranking to Snap One Holdings Corp. (“Snap One”) following the refinancing of credit score amenities in December 2021. Moody’s additionally assigned a B2 instrument degree ranking to the corporate’s senior secured first lien credit score amenities, which features a $100 million revolver due December 2026 and a $465 million time period mortgage due 2028. These rankings actions are a results of a change within the borrower of the corporate’s credit score amenities from Wirepath LLC to Snap One Holdings Corp. In consequence, all rankings for Wirepath LLC can be withdrawn. The Speculative Grade Liquidity ranking has been assigned as SGL-2. The outlook stays secure.RATINGS RATIONALESnap One’s B2 CFR displays the corporate’s robust market presence and the enhancement of scale, world distribution and market share through acquisitions and natural income progress within the 10% space. The corporate is among the most acknowledged names by skilled installers within the house audio-visual (“AV”) and automation markets and is among the largest gamers within the house. Snap One’s direct-to-integrator gross sales mannequin is designed to eradicate the danger of intermediation by lower-cost retail suppliers by changing conventional design, manufacturing, and distribution roles with a totally built-in platform primarily based on an environment friendly e-commerce platform. Moody’s believes that sensible house trade has a good long-term outlook as shoppers embrace new applied sciences that enhance connectivity and high quality of life. Moody’s expects that the corporate will be capable to increase into further house tools through natural progress or small acquisitions that would enhance the income base and enhance scale in the long run. As well as, the corporate’s technique of penetrating the technology-enabled sensible house market can create alternatives for subscription-based income.Snap One’s rankings are constrained by its publicity to volatility within the financial atmosphere associated to housing market power and client discretionary spend. The corporate’s merchandise are concentrated within the very excessive finish of the house AV market with common spend of $20,000 per undertaking by the shopper. Demand for the corporate’s merchandise are elastic and inclined to say no throughout recessionary situations when shoppers droop excessive ticket discretionary purchases. With out penetration into the mid-tier of house AV and automation installations, the dangers of considerably declining demand in a recessionary atmosphere will proceed to be a function of the credit score. Regardless of public possession, the corporate stays sponsor-controlled which, in Moody’s view, elevates the danger of aggressive progress or shareholder return methods.The secure outlook displays the expectation that working situations can be favorable over the foreseeable future and the robust efficiency and resiliency of demand that the corporate has proven over the pandemic is predicted to proceed. Snap One has been in a position to increase its buyer base to 16,000 integrators and 70% of its gross sales are from proprietary manufacturers which have larger margins than third occasion manufacturers. Demand for residential AV and automation tools is supported by secular tailwinds as extra shoppers search to make their houses related and as houses turn out to be ‘smarter’. The corporate’s merchandise are focused in direction of the excessive finish of the residential market and initiatives which might be accomplished by the corporate’s community of installers are typically extremely technical in nature. Going ahead, leverage is predicted to say no to round 4.7x by the top of 2022 and free money circulate to be constructive for the yr, pushed by regular income progress and secure margins.The credit score amenities present covenant flexibility that if utilized might negatively affect collectors. Notable phrases embrace the next:(i) Incremental debt capability as much as the sum of the larger of $110,000,000 and 100.0% of Consolidated EBITDA, plus unused capability reallocated from the final debt basket, plus limitless quantities topic to professional forma internet first lien leverage ratio of 4.5x. Quantities as much as the larger of $55m and 50% of Consolidated EBITDA could also be incurred with an earlier maturity than the preliminary time period loans.(ii) The credit score settlement permits the switch of belongings to unrestricted subsidiaries, as much as the carve-out capacities, topic to “blocker” provisions which prohibit the switch of fabric mental property to unrestricted subsidiaries.(iii) Non-wholly-owned subsidiaries are usually not required to offer ensures; dividends or transfers leading to partial possession of subsidiary guarantors might jeopardize ensures, topic to protecting provisions limiting such assure releases in reference to a de minimis switch of capital inventory with no bona fide enterprise goal, meant solely to launch the assure as decided by the borrower.(iv) There are not any specific protecting provisions prohibiting an up-tiering transaction.The SGL-2 Speculative Grade Liquidity Ranking displays Moody’s expectation that Snap One will preserve good liquidity. Liquidity is supported by about $60 million of money on the stability sheet as of September 30, 2021 and anticipated $50 million in free money circulate for 2022, which collectively ought to cowl the anticipated money outflow by way of 2022, together with a $4.7 million necessary debt amortization and any working capital makes use of. Free money circulate to debt is predicted to be within the 10% to 12% vary for this yr and subsequent yr, which is powerful for the ranking class. Liquidity can be supported by the corporate’s $100 million revolver that has full availability apart from round $5 million of letters of credit score. The revolver is topic to a springing leverage covenant however Moody’s doesn’t anticipate the corporate to attract down on the revolver over the subsequent 12 months and thus the revolver will not be anticipated to be topic to the covenant.Assignments:..Issuer: Snap One Holdings Corp….. Company Household Ranking, Assigned B2…. Chance of Default Ranking, Assigned B2-PD…. Speculative Grade Liquidity Ranking, Assigned SGL-2….Senior Secured 1st Lien Time period Mortgage, Assigned B2 (LGD3)….Senior Secured 1st Lien Multicurrency Revolving Credit score Facility, Assigned B2 (LGD3)Outlook Actions:..Issuer: Snap One Holdings Corp…..Outlook, Assigned StableFACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe rankings may very well be upgraded if Moody’s expects 1) sustained natural income progress and rising scale and continued diversification of merchandise offered; 2) debt to EBITDA (Moody’s adjusted) to stay beneath 4.0x; and 4) the corporate will maintain good liquidity by way of cycles.The rankings may very well be downgraded if 1) income or income don’t develop as anticipated, evidencing elevated competitors or lack of market share; 2) Moody’s expects debt to EBITDA can be sustained above 5.5x; 3) liquidity deteriorates; or 4) free money circulate approaches break–even (all metrics Moody’s adjusted).Snap One Holdings Corp. is a technology-enabled, value-added wholesale provider and distributor of services and products to integrators in, primarily, the house and small enterprise audio visible tools sector. Snap One, which generated $960 million of revenues for the LTM interval ended September 30, 2021, is a publicly traded firm, however nonetheless majority owned by funds affiliated with personal fairness sponsor Hellman & Friedman. The corporate is headquartered in Charlotte, NC.The principal methodology utilized in these rankings was Enterprise and Client Providers revealed in November 2021 and obtainable at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a duplicate of this system.REGULATORY DISCLOSURESFor additional specification of Moody’s key ranking assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. Moody’s Ranking Symbols and Definitions might be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For rankings issued on a program, sequence, class/class of debt or safety this announcement supplies sure regulatory disclosures in relation to every ranking of a subsequently issued bond or observe of the identical sequence, class/class of debt, safety or pursuant to a program for which the rankings are derived solely from current rankings in accordance with Moody’s ranking practices. For rankings issued on a assist supplier, this announcement supplies sure regulatory disclosures in relation to the credit standing motion on the assist supplier and in relation to every explicit credit standing motion for securities that derive their credit score rankings from the assist supplier’s credit standing. For provisional rankings, this announcement supplies sure regulatory disclosures in relation to the provisional ranking assigned, and in relation to a definitive ranking that could be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the project of the definitive ranking in a fashion that may have affected the ranking. For additional info please see the rankings tab on the issuer/entity web page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit score assist from the first entity(ies) of this credit standing motion, and whose rankings could change on account of this credit standing motion, the related regulatory disclosures can be these of the guarantor entity. Exceptions to this method exist for the next disclosures, if relevant to jurisdiction: Ancillary Providers, Disclosure to rated entity, Disclosure from rated entity.The rankings have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.These rankings are solicited. Please discuss with Moody’s Coverage for Designating and Assigning Unsolicited Credit score Scores obtainable on its web site www.moodys.com.Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated ranking outlook or ranking assessment.Moody’s normal ideas for assessing environmental, social and governance (ESG) dangers in our credit score evaluation might be discovered at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The World Scale Credit score Ranking on this Credit score Ranking Announcement was issued by one in every of Moody’s associates exterior the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Predominant 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Ranking Companies. Additional info on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is offered on www.moodys.com.The World Scale Credit score Ranking on this Credit score Ranking Announcement was issued by one in every of Moody’s associates exterior the UK and is endorsed by Moody’s Buyers Service Restricted, One Canada Sq., Canary Wharf, London E14 5FA underneath the regulation relevant to credit standing businesses within the UK. Additional info on the UK endorsement standing and on the Moody’s workplace that issued the credit standing is offered on www.moodys.com.Please see www.moodys.com for any updates on modifications to the lead ranking analyst and to the Moody’s authorized entity that has issued the ranking.Please see the rankings tab on the issuer/entity web page on www.moodys.com for extra regulatory disclosures for every credit standing. 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