Accuride (ACW) Ratings Placed on Watch for Upgrade by S&P
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S&P Global Ratings said that it has placed its 'B-' corporate credit rating on Accuride Corp. (NYSE: ACW) on CreditWatch with positive implications.
At the same time, we assigned our 'B' issue-level rating and '3' recovery rating to the company's proposed secured term loan due 2023. The '3' recovery rating indicates our expectation for meaningful recovery (50%-70%; upper half of the range) in the event of a payment default. The 'B' issue-level rating is notched off the company's prospective corporate credit rating if the acquisition is completed as proposed.
Our ratings on the company's existing senior notes remain unchanged. We expect to withdraw our ratings on the existing senior notes at the close of the transaction.
"The CreditWatch placement follows Accuride's announcement that it has entered into an agreement to be acquired by Crestview Partners," said S&P Global credit analyst Michael Durand. After the transaction closes, we expect to raise our corporate credit rating on the company to 'B' from 'B-', remove it from CreditWatch, and assign a stable outlook if the new capital structure is implemented as proposed. The prospective upgrade reflects the company's improved incremental cash flow from the $13 million of expected interest expense savings under the proposed transaction and the extension of its debt maturities. We expect the company's debt-to-EBITDA metric to improve to around 4.0x by year-end 2016 from 5.2x as of June 30, 2016. If the Crestview acquisition is completed as proposed, we expect that the financial policies of the company's new financial sponsor will support these more favorable credit metrics.
We intend to resolve the CreditWatch placement when Crestview Partners' proposed acquisition of Accuride closes. If Crestview were to acquire Accuride, we would expect the company's leverage to be reduced such that its debt-to-EBITDA metric will be closer to 4x over the next year. We will also assess the company's financial policies to determine if its target leverage ratio following the transaction warrants a more favorable financial risk profile assessment.
However, if Crestview does not complete the acquisition of Accuride as currently proposed, we would likely affirm our corporate credit rating on the company, remove it from CreditWatch, and assign a stable outlook. We would not consider a higher rating until we gain a better understanding of the company's alternative course of action and what implications it will have on Accuride's business and financial risk profiles.
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