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Investing.com -- S&P Global Ratings has revised the recovery rating on TopBuild (NYSE:BLD) Corp.’s senior notes to ’4’ from ’3’ on May 19, 2025. This change does not affect the issue-level rating on the notes, which remains at ’BB+’. The new ’4’ recovery rating indicates the expectation for an average recovery of 30%-50%, with a rounded estimate of 35%.
This revised recovery rating comes after TopBuild’s announcement of refinancing its $500 million revolver and $476 million outstanding term loan A with a new five-year facility. This new facility consists of a $1 billion revolver, a $1 billion term loan A, and a $250 million delayed-draw term loan. Besides refinancing the existing facilities, TopBuild will use the proceeds to fund future acquisitions and for general corporate purposes.
The revised recovery rating on the company’s senior notes signifies lower recovery prospects for unsecured lenders. This is due to the increased amount of priority debt in TopBuild’s capital structure following the upsized revolver and term loan facilities. In case of a default, this larger priority debt is expected to absorb more recovery value, leaving less available for senior notes lenders.
The issuer credit rating on TopBuild remains at ’BB+’ with a stable outlook. The upsized debt facilities will increase the projected pro forma 2025 S&P Global Ratings-adjusted leverage to about 2x. This is still below their downside ratings threshold and provides a sufficient cushion to withstand industry cyclicality. S&P Global Ratings expects that price increases, along with the stability of TopBuild’s commercial and industrial sales, will continue to help offset the challenges of slowing growth rates for single-family and multi-family housing.
TopBuild’s capital structure now consists of a $1 billion revolving credit facility, a $1 billion senior secured term loan, a $250 million senior secured delayed-draw term loan, $400 million senior unsecured notes due in 2029, and $500 million senior unsecured notes due in 2032. The company is the issuer and borrower of the debt, and the notes rank junior to the company’s senior secured credit facilities.
In a simulated default scenario, a default occurring in 2030 is contemplated. This would be due to decreased demand from a sustained downturn in the company’s end markets, specifically U.S. single- and multi-family residential construction, and increased competition for insulation products and services. The recovery prospects assessment contemplates a reorganization value for the company of about $2.2 billion, which reflects emergence EBITDA of about $442 million and a 5.0x multiple.
Under this simulation, the total collateral value available for secured debt would be about $2.1 billion, secured debt claims would be about $1.77 billion, the remaining value available for unsecured debt would be about $333 million, and unsecured debt claims would be about $918 million. The recovery expectations would be 30%-50%, with a rounded estimate of 35%.
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