CD&R LBO Downgrades Cornerstone, Leverage Soars

to 'B' from 'B+' on July 13, 2022, following Clayton, Dubilier & Rice's (CD&R) leveraged buyout, which increases adjusted debt leverage to 6x-7x over the next 12 months. CD&R acquired its remaining equity stake for approximately $2.2 billion, funded by $410 million term loan B, $600 million new senior secured notes, $464 million HoldCo PIK notes, $195 million cash equity, and cash on the balance sheet.

S&P Global Ratings assigned a 'B' rating to the new and existing senior secured debt and a 'CCC+' rating to the existing $500 million unsecured notes. The stable outlook reflects S&P's expectation of 6x-7x adjusted leverage and approximately 13% EBITDA margins over the next 12 months, despite potential macroeconomic headwinds and volatile raw material costs.

Cornerstone maintains leading market positions in cyclical construction markets, with two-thirds of revenue from new residential and commercial construction, and one-third from more stable repair and replacement activity. S&P Global Ratings views governance as a moderately negative consideration due to the financial sponsor's focus on maximizing shareholder returns and finite holding periods.