Morningstar DBRS Upgrades the Credit Rating on Mattr Corp.'s Senior Unsecured Notes to BB (low) from B (high) and Confirms Issuer Rating at BB; Trends Are Stable

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of Mattr Corp. (Mattr or the Company, formerly Shawcor Ltd.) at BB and upgraded the credit rating on the Company's Senior Unsecured Notes (the Notes) to BB (low) from B (high). The trends on both ratings are Stable and the Recovery Rating on the Notes was changed to RR5 from RR6. With these actions, Morningstar DBRS removed the credit ratings from Under Review with Developing Implications where they had been placed on November 14, 2024.

KEY CREDIT RATING CONSIDERATIONS
On November 14, 2024, following the Company's announcement that it had signed a definitive agreement to acquire all outstanding shares of AmerCable Incorporated (AmerCable) from Nexans USA Inc. for a purchase price of USD 280 million ($390 million; the Transaction), Morningstar DBRS placed Mattr's ratings Under Review with Developing Implications. At the time, Morningstar DBRS stated that, assuming it closed as planned, the acquisition would enhance Mattr's wire and cable business exposure within the U.S. market. The Transaction would also broaden the existing portfolio and add to the Company's North American manufacturing capabilities, potentially bolstering long-term growth and margin outlook. That said, Morningstar DBRS also anticipated that the Transaction would result in increased leverage and a material weakening of the Company's financial profile.

Since then, the Company has closed the acquisition, which incrementally improved Mattr's business risk profile as expected. However, the improvement in the Company's business risk profile is more than offset by the material weakening of its financial risk profile, which also limits the potential for any near-term upgrade to Mattr's Issuer Rating. Furthermore, the trend changes also consider the weaker-than-expected operating performance in the nine months ended September 30, 2024 (Q3 2024). However, the Stable trends reflect Morningstar DBRS expectations that, over the near to medium term, the Company should comfortably integrate AmerCable, deliver a relatively solid operating performance, and prioritize the allocation of excess cash toward debt reduction, leading to improving credit metrics.

CREDIT RATING DRIVERS
Morningstar DBRS could take a negative rating action if credit metrics were to remain weak over a sustained period or deteriorate further (i.e., debt-to-EBITDA decline toward 4.0 times (x) with a commensurate weakening of the Company's other key credit metrics), as a result of weaker-than-expected operating performance and/or more aggressive financial management. Morningstar DBRS could take a positive rating action should Mattr's business risk profile continue to strengthen as the Company integrates AmerCable and further expands its operational profile in the existing Composite Technologies and/or the Connection Technologies business segments while improving and maintaining key credit metrics at levels that are commensurate with a higher rating category.

EARNINGS OUTLOOK
Following the AmerCable acquisition, Morningstar DBRS forecasts the Company to post revenues of more than $1.25 billion in F2025 and $1.3 billion in F2026 from $913 million in the last 12 months (LTM) ended Q3 2024. This should be supported by aggregate revenue growth in both Composite Technologies and Connection Technologies business segments. Despite temporary weakness in 2024 in the Composite Technologies segment, Morningstar DBRS expects demand recovery in 2025 and beyond, especially following the U.S. elections that should spur broader economic activity, including North American drilling. In the Connection Technologies segment, contributions from AmerCable and increasing revenues at Shawflex should both contribute to growing revenues. In line with revenue growth, and including the contribution from AmerCable, Morningstar DBRS forecasts EBITDA (as calculated by Morningstar DBRS) to rise to more than $170 million in 2025 and more than $220 million in 2026 from $126 million in the LTM ended Q3 2024. This increase in EBITDA should be supported by contributions from AmerCable of more than $65 million annually.

FINANCIAL OUTLOOK
This increase in EBITDA should be accompanied by growth in free cash flow. Free cash flow (before changes in working capital) should increase to more than $150 million and $165 million in 2025 and 2026, respectively, from $73.7 million in the LTM ended Q3 2024. Morningstar DBRS anticipates the Company will use its free cash flow for debt reduction and/or incremental shareholder returns leading to improved credit metrics, such as debt-to-EBITDA declining below 3.5x by the end of 2025 and improving further thereafter.

CREDIT RATING RATIONALE
The ratings are supported by the Mattr's leadership position in both of its business divisions, including further improved market position in the Connection Technologies segment; diverse customer and geographic bases; growing manufacturing and market presence in the important U.S. market; strong technical expertise; and favourable long-term economic trends that should continue to support the business risk profile over the medium to long term. The ratings also consider Mattr's improved but still relatively small-scale exposure to the volatile oil and gas sector, the fluctuating cost of raw materials, and its small but growing water tank business.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (August 13 2024) at https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Mattr, the relative weighting of the BRA factors was approximately equal

(B) Weighting of FRA Factors
In the analysis of Mattr, the relative weighting of the FRA factors was approximately equal

(C) Weighting of the BRA and the FRA
In the analysis of Mattr, the BRA and the FRA carry approximately equal weight.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Industrial Products Industry (April 15, 2024), https://dbrs.morningstar.com/research/431173.

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024, https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies and criteria have also been applied:
-- Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186

-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

All Morningstar DBRS credit rating methodologies can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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