Research: Rating Action: Moody’s Downgrades CFR from TruGreen to B3; outlook is stable

Approximately $1.7 billion of debt securities affected

New York, August 18, 2022 — Moody’s Investors Service (Moody’s) has downgraded the Corporate Family Rating (CFR) of TruGreen Limited Partnership (TruGreen) to B3 from B2 and the Probability of Default (PDR) rating to B3-PD from B2-PD. Moody’s also lowered the rating of the secured bank credit facility from B2 to B2 and the rating of the second lien term loan to Caa2 from Caa1. The outlook remains stable.

“TruGreen’s dividend in early 2022, followed by weakening consumer demand and rising interest, fuel and ferritization costs, will continue to test the credit quality of the company. company,” said Justin Remsen, assistant vice president of Moody’s.

“Despite the price increases and cost reduction measures, we no longer believe that TruGreen will generate much more than breakeven cash flow or maintain leverage below 6.0x over the next 12-18 months, including including standard Moody’s adjustments,” adds Remsen.

Downgrades:

..Issuer: TruGreen Limited Partnership

….Corporate Family Rating, downgraded from B2 to B3

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

….Primarily secured senior revolving credit facility, downgraded from B2 (LGD3) to B1 (LGD3)

….Senior Secured 1st Privilege Term Loan, Downgraded to B2 (LGD3) from B1 (LGD3)

….Gtd Senior Secured 2nd Privil Term Loan, downgraded to Caa2 (LGD6) from Caa1 (LGD5)

Outlook Actions:

..Issuer: TruGreen Limited Partnership

….Outlook remains stable

RATINGS RATIONALE

TruGreen’s B3 Corporate Family rating reflects the company’s limited growth, low EBITDA margins and high leverage resulting from an aggressive financial policy. Leverage should remain close to 7x as persistent inflation challenges both consumer demand and spending levels. At the same time, TruGreen has a strong market position as the leading provider of lawn care services for the residential market in the United States. With a large market share in a highly fragmented industry, TruGreen primarily competes with smaller independent local suppliers in a highly fragmented industry. Additionally, the company is supported by high levels of recurring revenue and a diverse customer base.

TruGreen has an adequate liquidity profile, which Moody’s expects to maintain over the next 12 to 18 months. The Company’s liquidity profile is supported by approximately $22 million in cash as of July 2, 2022 and $139 million available under the Company’s revolving credit facility. Our forecast assumes that the company will rely more on the revolver in 2023, but below the company’s commitment test of 35% fired. Moody’s forecasts free cash flow of $25 million in 2022 (excluding dividend of $164 million) and $10 million in 2023, with assumed additional interest expense of $35 million a key contributor to the deterioration .

The stable outlook reflects Moody’s expectation that while TruGreen will continue to be pressured by slowing consumer demand and high input costs, its credit metrics will remain in line with its B3 peers.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ratings could be improved if adjusted debt to EBITDA is kept below 6x, EBITA to interest above 1.75x, company shows improved free cash flow and maintains good profile of liquidity.

Ratings could be downgraded if Adjusted Debt to EBITDA is greater than 7.0x, EBITA to Interest is less than 1.0x and there is deterioration in liquidity.

The main methodology used in these ratings is that of business and consumer services published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356424. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Based in Memphis, Tennessee, TruGreen Limited Partnership is a North American lawn care service provider controlled by subsidiaries of Clayton, Dubilier & Rice. The company primarily serves the residential market with more than 250 company-operated and franchised locations in 48 states and three Canadian provinces.

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.

At least one ESG consideration was material to the announced credit rating metric(s) described above.

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.

justin remsen
Assistant Vice President – Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
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Gretchen French
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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