Accuride Ratings Affirmed Following Announcement Of $90 Million Term Loan Add-On, Outlook Remains Stable

Stocks and Financial Services Press Releases Wednesday October 25, 2017 09:10
NEW YORK--25 Oct--S&P Global Ratings
NEW YORK (S&P Global Ratings) Oct. 24, 2017--S&P Global Ratings today affirmed its 'B' corporate credit rating on Accuride Corp. The outlook is stable.

At the same time, we affirmed our 'B' issue-level rating on the company's secured term loan due November 2023. The '3' recovery rating remains unchanged, indicating our expectation for meaningful recovery (50%-70%; rounded estimate: 60%) in the event of a payment default.

The affirmation follows Accuride's announcement that it is planning to issue a $90 million add-on to its existing term loan B due November 2023. The company plans to use the proceeds from the add-on, along with $33 million of additional equity, to fund its acquisition of mefro wheels GmbH, a leading European provider of steel wheels. This is the second acquisition that Accuride has announced in 2017 following its acquisition of KIC (a North America-based wheel and wheel-end supplier), which it completed earlier this year.

The stable outlook on Accuride reflects our expectation that, pro forma for the company's acquisitions of KIC LLC and Mefro, its leverage will remain in line with our expectations for the current rating with debt-to-EBITDA of less than 5x. We believe that these acquisitions will provide the company with incremental revenue growth as it continues to execute on its global expansion initiatives. In addition, we expect the company to benefit from increased class 8 commercial vehicle production in 2018 and stable demand in the class 5-7 markets, which should provide it with the opportunity to modestly improve its credit metrics over the forecast period.

We could lower our ratings on Accuride over the next 12 months if the company's debt-to-EBITDA exceeds 5x or its FOCF-to-debt ratio declines to less than 5% on a sustained basis. This could occur if Accuride experiences key missteps while integrating its recent acquisitions or if the company takes on a more aggressive financial policy such that additional debt-financed acquisitions increase its debt-to-EBITDA above 5x. Additionally, we could lower our ratings if the company's EBITDA margins meaningfully deteriorate due to elevated material costs or increased pricing pressure.

Although unlikely over the next year, we could raise our ratings on Accuride if the company maintains debt-to-EBITDA of less than 5x, a FOCF-to-debt ratio of more than 5%, and our view of the company's overall business risk improves. This could occur if Accuride's international growth strategy allows the company to achieve enough scale and geographic diversity to leverage these benefits and improve its profitability.


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