Carlyle-backed TAMKO Building Products recently saw a drop in its earnings after undertaking a debt-funded dividend distribution to its shareholders. This news comes shortly after Moody's Ratings assigned a B2 rating to TAMKO's proposed $415 million 4-year senior secured first lien term loan B due September 2030, with the proceeds intended to fund this dividend. Moody's had noted that the debt-financed distribution would increase the company's pro forma 2026 debt/EBITDA to 5x, reducing the cushion in its B2 rating category for unexpected underperformance, though they expected leverage to decline to 4.7x in 2027.
Despite this earnings drop, Moody's maintained TAMKO's B1 corporate family rating (CFR) and a stable outlook, citing the company's strong profitability with an EBITDA margin around 18%. The company's focus on residential roofing products, particularly for repair and remodel markets, is viewed as stable due to their non-discretionary nature. TAMKO also possesses a good liquidity position and typically generates free cash flow under normal business conditions.
However, Moody's also highlighted TAMKO's relatively small size in terms of revenue and its operation in highly competitive markets. The rating agency has previously noted TAMKO's track record of using excess cash flow for shareholder distributions beyond tax obligations, and periodically executing debt-funded dividends. This aggressive financial policy was also a point of concern for S&P Global Ratings, which observed that payouts amounted to almost all of TAMKO's free cash flow. For a potential upgrade, Moody's indicated that debt/EBITDA would need to remain below 3.5x with good liquidity and more predictable financial policies, while a sustained debt/EBITDA above 4.5x or aggressive return on capital policies could lead to a downgrade.
