Investing.com -- Moody’s Ratings has confirmed the ratings of Doman Building Materials Group Ltd., including the Ba3 corporate family rating (CFR), Ba3-PD probability of default rating (PDR), and B1 ratings on the existing senior unsecured notes. The outlook has been revised to negative from stable, and the speculative grade liquidity rating (SGL) was downgraded to SGL-4 from SGL-3.
The revision of the outlook is due to the company’s weak liquidity and the increased risks related to execution and refinancing of Doman’s CAD272 million notes, which are due in May 2026. This comes in the face of an increasingly uncertain economic and capital markets environment. Moody’s anticipates that Doman’s strong operational performance will persist, supporting the company’s refinancing efforts.
The rating action was influenced by governance considerations, reflecting Doman’s propensity for financial strategies that increase refinancing risk.
Doman’s Ba3 negative rating benefits from its strong positions in the Canadian building materials distribution and North American pressure treated lumber markets, good geographical diversification with some vertical integration, and good market fundamentals in repair, renovation and remodeling with decent long-term growth prospects. Moody’s expects Doman’s financial leverage to decrease but remain around 4x over the next 12-18 months.
However, the rating is limited by several factors including concentration in the North American renovation, repair and remodel end market, exposure to sudden drops in wood product prices, expected weaker demand due to a decline in new housing starts in the US and Canada, potential challenges related to growth through acquisition, and low operating margins primarily driven by its building materials distribution segment.
The negative outlook reflects Doman’s weakened liquidity, driven by the approaching debt maturity of 2026 notes that requires refinancing. Moody’s expects the company’s financial leverage to remain around 4x in 2025 and 2026.
Doman’s liquidity is weak, with approximately CAD230 million of liquidity sources compared to CAD272 million of uses. Liquidity sources consist of CAD14 million of cash as of December 2024, about CAD154 million of availability under its CAD580 million revolving credit facility due in April 2028, and expected positive free cash flow of about CAD60 million through mid-2026.
The B1 ratings on Doman’s CAD325 million senior unsecured notes due in 2026 and the CAD365 million senior unsecured notes due in 2029 are one notch below the Ba3 CFR. This reflects the noteholders’ subordinate position in the company’s capital structure behind the secured CAD580 million asset-based revolving credit facility expiring in 2028.
The ratings could be upgraded if Doman’s market position grows, adjusted debt to EBITDA is sustained below 3x, retained cash flow to debt is sustained above 15%, and liquidity improves and maintains. On the other hand, the ratings could be downgraded if Doman doesn’t refinance the 2026 notes in a timely manner, operational performance deteriorates significantly, leverage is sustained above 4.5x, RCF/adjusted debt is sustained below 5%, or liquidity weakens.
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