DBRS Assigns Provisional Rating of BBB to Reliance LP’s Proposed Senior Secured Notes Issuance

DBRS has today assigned a provisional rating of BBB with a Stable trend to Reliance LP’s (OpCo or the Company) Senior Secured Notes issuance. The Company’s credit profile has remained stable year-to-date. OpCo’s refinancing risk is expected to be mitigated once the Company applies the proceeds of a proposed offering of senior secured notes to repay existing indebtedness. Upon successful issuance, financial ratios are expected to improve pro-forma lower interest costs. In addition, OpCo’s liquidity position is expected to meaningfully improve as a result of increased headroom on a new revolver.

The Company’s current ratings are underpinned by the stable cash flow and strong operating characteristics of its water heater rental and HVAC (heating, ventilation and air conditioning) businesses and a large customer base, but are limited by its parent’s (Reliance Intermediate Holdings LP or HoldCo; rated BB (high)) high debt leverage and increasing competition in the water heater business. Growth in EBITDA has been modest but steady.

However, the Company has faced increased competition due to new entrants in the marketplace. OpCo has experienced a higher-than-normal attrition rate over the past two years. Net customer growth remained positive as new customer additions through acquisitions and new housing starts more than offset the loss of customers due to attrition. The Company’s second line of business – the security monitoring business – entails higher risk than the water heater rental business, but provides some diversification benefits and opportunities for earnings growth. OpCo’s security operation is the second largest in Canada.
OpCo’s financial profile has been relatively stable, with interest coverage and cash flow ratios remaining within the current rating range.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating the Consumer Products Industry, which can be found on our website under Methodologies.