S&P Upgraded Axalta Coating Systems (AXTA) to 'BB'; Business, Financial Risk Assessments Affirmed

S&P Global Ratings today raised its corporate credit rating on Axalta Coating Systems Dutch Holding B B.V. (NYSE: AXTA) to 'BB' from 'BB-'. The outlook is stable.

We also raised our issue-level rating on the company's senior secured debt to 'BB+' from 'BB-' and revised the recovery rating to '2' from '3,' indicating our expectation of substantial (70% to 90%; lower half of the range) recovery in the event of a payment default. At the same time, we raised our issue-level rating on the company's senior unsecured debt to 'B+' from 'B'. The recovery rating remains '6', indicating negligible (0%-10%) recovery in the event of a payment default.

"Our assessments of the company's business risk and financial risk profiles remain satisfactory and aggressive, respectively," said S&P Global Ratings credit analyst Allison Schroeder.

The outlook is stable. Under expected market conditions and our operating assumptions, Axalta Coating Systems Dutch Holding B B.V. is set to generate stable EBITDA. This outlook is predicated on our assumptions that the company will have low-single-digit revenue growth and that EBITDA margins will be about 20% over the next 12 months. Additionally, we continue to expect that the company will continue to pay down debt and have a weighted average FFO to debt of just below 20% (including a mix of historical and projected numbers)over the next year. We also assume that that company will not issue dividends and will not pursue any large acquisitions.

We could lower the ratings if economic or auto industry conditions deteriorate significantly, resulting in FFO to debt of less than 12% without any prospects over the next year. Although not currently anticipated, substantial debt funding for a dividend distribution or a sizable acquisition, or less-than-adequate liquidity could also trigger a downgrade over a similar timeframe.

We could consider a positive rating action if the company is able to improve its business risk profile, especially through its competitive position and EBITDA margins. This could happen through an improvement of end-market diversity or if the company is further able to successfully execute its growth-initiative projects, such as the Axalta Way. Additionally, there could be upside potential if we expect that the company would be able to maintain FFO to debt of greater 20% over the next year, which we would expect to be on a sustained basis.

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