Tarkett’s B2 rating affirmed by Moody’s, outlook shifts to positive

Investing.com -- Moody’s Ratings has affirmed the B2 long-term corporate family rating (CFR) and B2-PD probability of default rating (PDR) of Tarkett (EPA:TKTT) Participation (Tarkett) today, in light of the proposed amend extend (A&E) transaction of its senior secured bank credit facilities. Simultaneously, Moody’s assigned B2 instrument ratings to the proposed amended and extended senior secured first lien term loan Bs (TLB) and senior secured first lien revolving credit facility (RCF). Upon completion of the transaction, Moody’s anticipates withdrawing the ratings on the existing senior secured TLBs due 2028 and RCF due 2027. The outlook for Tarkett has been revised to positive from stable.

In the A&E transaction, Tarkett intends to extend the maturity of its current senior secured credit facilities by three years and increase the euro-denominated tranche of its TLB and the RCF by up to €50 million each. Tarkett announced plans in February 2025 to fund a €101 million public buy-out and squeeze-out offer to acquire the 9.6% minority shares in Tarkett S.A, using a combination of equity capital and existing credit facilities. The increased funds from the instruments are expected to partially finance both the offer and external growth opportunities.

The ratings action reflects Tarkett’s strong operational performance in 2024, despite a slowdown in the construction market. Tarkett achieved solid earnings growth through a positive price-cost spread and lower raw material prices cost, along with cost-saving and productivity initiatives under the Productivity Action (WA:ACT) Plan that yielded €27.3 million savings in 2024. This led to an increase in Tarkett’s Moody’s-adjusted EBITDA margin to 8.0% in 2024, up from 7.6% in 2023.

However, the rating is limited by inconsistent profitability growth and significant margin volatility across divisions and regions. Tarkett’s profitability remains consistently lower than rated peers due to its exposure to the residential end-market and higher revenue share from distributors rather than installers.

Tarkett’s credit rating is supported by its good liquidity profile and consistent track record of positive free cash flow generation. The positive outlook reflects potential upward rating pressure over the next 12-18 months if Tarkett maintains a solid operating performance leading to credit metrics commensurate with a higher rating.

We expect Tarkett to maintain good liquidity in the next 12-18 months, supported by access to €268 million unrestricted cash (as of 31 December 2024) and €400 million undrawn committed RCF (post-A&E transaction). Tarkett will have no significant debt maturities prior to 2031, when the TLB comes due.

Following the transaction, Tarkett’s capital structure will consist of €1,038 million equivalent senior secured first lien TLB and €400 million senior secured first lien RCF. Both the TLB and RCF are guaranteed by operating subsidiaries that generate at least 80% of the consolidated group’s EBITDA.

Positive rating pressure could develop if Tarkett improves its EBITA margin, reduces its debt/EBITDA ratio, improves its EBITA/interest ratio, and maintains good liquidity. Conversely, negative rating pressure would arise if Tarkett’s profitability deteriorates or its liquidity weakens.

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