Fitch Ratings has affirmed
Fitch also affirmed the company's senior first lien revolver and term loan B at 'BB+'/'RR1' and senior unsecured notes at 'B+'/'RR4'. The Rating Outlook is Stable.
TUT's ratings reflect the company's improving backlog, a high degree of revenue and cash flow visibility on many of the company's projects, and long-term secular tailwinds including an expected increase in infrastructure spending in the
Key risks to the rating and Outlook include potential project delays, labor shortages, cyclicality, and key person risk. Working capital fluctuations throughout the year could also exacerbate cash flow seasonality and strain liquidity during a hypothetical downside scenario.
Fitch has withdrawn TUT's ratings for commercial reasons.
Key Rating Drivers
Backlog Set to Improve: Fitch considers the company's backlog to be a positive driver for the company despite being lower than 2019 levels. Backlog stabilized at around
Fitch anticipates project bidding and new contracts to pick up in 2022 as state and federal governments increase infrastructure spending and the passing of the
Strong Position, Limited Competitors: Following a market shift over the past few years, a limited number of competitors are willing to take on large infrastructure contracts. Fitch believes TUT has separated itself through a reputation for consistent execution over the years. The company has effectively managed project risk and largely avoided large cost overruns that have affected peers. Competition could increase again over time if former competitors reenter the space following the
Deleveraging capacity: TUT's nominal debt balance remained elevated at
Adequate Liquidity, Flexibility: Fitch considers the company's liquidity to be adequate to cover working capital fluctuations, capex spending, and debt servicing during a moderate temporary downturn. The company had
Scale and Market Position: TUT's rating is supported by the firm's scale and domestic market position. The company maintains operations that are predominantly located in the
Diversified Projects and Customers: Fitch considers TUT to be relatively diversified by contract and moderately diversified by end-market. The company features a balanced split between private and public customers, with approximately 64% of revenue generated from federal, state and local government agencies over the past three years, and the remaining 36% originating from private project owners. The company's
Derivation Summary
TUT's rating reflects the company's strong reputation, product and end-market diversification compared with peers and meaningful growth prospects. The rating is constrained by the company's financial structure and profitability. Fitch considers the company's profitability to be comparable with other companies within the E&C industry but is vulnerable to the risk of intensifying competition and potential execution challenges.
Key Assumptions
Revenue to be flattish in 2022, followed by mid-single-digit growth in 2023 and 2024, driven by execution on outstanding backlog and new award bookings beginning in early 2022;
EBITDA margins remain around 7% over the rating horizon due to the improved contract mix and forecasted improvement in the specialty contractors portion of the business; the building segment operating margins remain in low single digits, civil segment generates in the mid-teens and specialty contractors fluctuates in the low- to mid-single-digits;
Annual capex between
The company effectively manages liquidity and working capital; and
No material acquisitions, dividends or share repurchases.
Key Recovery Rating Assumptions
The recovery analysis assumes TUT would be reorganized as a going concern in bankruptcy rather than liquidated;
A 10% administrative claim;
Going Concern Approach
Fitch assumes a distressed scenario in which the company loses several major customers/projects in conjunction with a large negative legal claim. We also incorporated the current weak bidding environment, which carries risk that contracts in its current backlog could theoretically not be replaced by new work;
The going concern EBITDA estimate of
An enterprise value multiple of 5.0x is applied to the going concern EBITDA to calculate a post-reorganization enterprise value. In determining the multiple, we considered the company's high exposure to cyclicality, and its diversification and strong reputation. We also considered the low trading multiple in the sector compared with other E&C and industrial companies;
Fitch notes that in this scenario, when comparing with a liquidation approach, we utilized a 25% accounts receivable recovery rate for the liquidation value analysis due to the assumption that much of the company's current project receivables would not be available to pre-petition creditors as a result of project disputes/litigation. It is customary within the industry for major disputes with project owners to drag on for years, even post-bankruptcy, and in any case would likely be settled for a significant discount.
The allocation of value in the liability waterfall results in recovery corresponding to 'RR1' recovery for the senior secured revolver and term loan and a recovery corresponding to 'RR4' for the senior unsecured notes.
RATING SENSITIVITIES
Ratings sensitivities are no longer applicable given the ratings withdrawal.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: Fitch considers the company's liquidity to be adequate to cover working capital fluctuations, capex and debt servicing during a temporary moderate downturn. We calculated the company's total available liquidity at greater than
The company also had an additional
Issuer Profile
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