Moody's Confirms Mohawk's Long Term Debt R

New York, NY, Nov. 13--Moody's Investors Service confirmed the Baa2 long term debt rating of Mohawk Industries, Inc. with a stable outlook following the announcement the company had completed its acquisition of Lees Carpet. The confirmation is based on Moody's view that the acquisition of Lees provides Mohawk with a complementary business to its Mohawk carpet segment with limited integration risk. The confirmation also reflects Mohawk's solid fundamental operating performance in its carpet and floor tiling businesses and the expectation that Mohawk will maintain its conservative financial profile. Lees, purchased from W.L. Ross Associates for $346 million, is a leading manufacturer in the commercial carpet segment and will provide Mohawk's commercial carpet segment with complimentary products. The enterprise value represents a multiple of approximately 7.5X estimated 2002 EBITDA. Lees had FYE 2002 revenues of approximately $262 million and EBITDA of $45 million. The acquisition of Lees will increase Mohawk's already strong market share in the carpet and floor covering industry. Moody's considers the purchase price multiple reasonable and does not expect the integration of Lees to cause challenges. Mohawk's Baa2 rating reflects (1)its leading marketshares in the carpet and floor tile businesses and the risks of the cyclicality of these businesses; (2)the company's conservative financial profile; (3)the increasing business risk from its acquisition appetite, balanced against the success it has had integrating prior acquisitions; and (4)its strong distribution network, partially offset by the competitive nature and cyclicality of the industry. The rating incorporates the potential for changing consumer preferences, the highly cyclical nature of the business, which are mitigated somewhat by Mohawk's size, scale and breadth of product line. The rating also encompasses Mohawk's solid liquidity to finance this transaction with its $300 million revolving credit facility and its $350 million accounts receivable securitization facility. The stable outlook is based on Moody's expectation that there are few short term risks involved with the integration of the Lees carpet business and that Mohawk will quickly bring its debt protection measures back in line with historical levels and maintain its conservative financial profile. Given the recent acquisitions Mohawk has made and the cyclicality of the business, there currently is little prospect of upward rating pressure. Over the longer term an upgrade would require 1) Mohawk to continue to achieve synergies from recent acquisitions without negatively effecting existing operations, 2) continue to maintain dominant marketshares in both its carpet and floor tiling segments, and 3) continue to maintain its conservative financial profile and a slowdown in its pace of acquisitions. Failure to 1) flawlessly integrate the Lees and Dal-Tile acquisitions, 2) maintain its strong market share and operations in its core businesses, or 3) maintain its conservative financial policy could result in downward rating pressure.

Related Topics:Mohawk Industries, Daltile

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