Close

S&P Downgrades Triumph Group (TGI) to 'BB-'; Outlook Stable

May 5, 2016 2:49 PM EDT

S&P Global Ratings said that it has downgraded Triumph Group Inc. (NYSE: TGI) to 'BB-' from 'BB'. The outlook is stable.

"The downgrade reflects the impact of the $1.3 billion in pre-tax charges that the company announced in the fourth quarter of fiscal year 2016 (ended March 31, 2016) on its earnings and cash flow, as well as the greater-than-expected declines in its revenue and earnings in fiscal year 2017 from production cuts on certain widebody and business jet aircraft," said S&P Global credit analyst Chris Denicolo. The proposed restructuring program--which the company expects will generate $300 million in annual savings by fiscal year 2019--should improve Triumph's margins over the next two to three years, though its EBITDA margins will likely not return to their pre-2015 levels until fiscal year 2019 (and could become more volatile during that period). We also believe that the company will refrain from undertaking material share repurchases or debt-financed acquisitions until its restructuring efforts are largely complete and its leverage has declined. In fiscal year 2017, we expect Triumph to post a debt-to-EBITDA metric of greater than 4.5x and a funds from operations (FFO)-to-debt ratio of 11%-13%, which should steadily improve thereafter. The company's fiscal-year 2016 credit ratios are not meaningful due to the $1.3 billion of pre-tax charges.

The stable outlook on Triumph reflects our belief that the company's proposed restructuring efforts should lower its cost structure and improve its margins over the next few years. We expect Triumph's revenue to decline in fiscal year 2017 due to decreased production levels on certain widebody and business jet programs, though we believe that the company's revenue will return to growth in fiscal year 2018. We expect the company's credit ratios to be weak in fiscal year 2017 with a debt-to-EBITDA metric of greater than 4.5x, though we anticipate that this measure will improve thereafter.

We could lower our ratings on Triumph if its debt-to-EBITDA metric increases above 5x or its FFO-to-debt ratio declines below 12% over the next 12 months and it appears unlikely that they will improve. This could occur if the company is unsuccessful at improving its profitability, if the production declines in certain programs are greater than we currently expect, or if (less likely) the company undertakes material share repurchases or debt-financed acquisitions.

Although not likely in the next 12 months, we could raise our ratings on Triumph if its restructuring efforts or higher-than-expected demand cause its earnings to improve faster than we envision in our current forecast such that its debt-to-EBITDA metric declines below 4x.



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Credit Ratings

Related Entities

Standard & Poor's, Earnings