Generac (GNRC) Ratings, Outlook Affirmed by S&P
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S&P Global Ratings said it affirmed its 'BB-' corporate credit rating on Generac Power Systems Inc (NYSE: GNRC). The outlook is stable. We also affirmed our 'BB-' issue-level rating on the company's senior secured debt and revised the recovery rating on the debt to '4' from '3', indicating our expectation of substantial (30%-50%; upper half of the range) recovery in the event of a default.
"The stable rating outlook reflects our expectation that the company will continue to generate positive free cash flow while maintaining total leverage below 4x for 2017," said S&P Global Ratings credit analyst Chiza Vitta.
We could lower the rating if credit measures weakened from current levels such that leverage was likely to be maintained above 4x. This could occur if Generac pursued acquisitions or share repurchases such that the level of free cash flow applied to debt repayments resulted in credit measures staying flat or weakening.
Based on our view of the company's fair business risk profile, and acquisition-driven growth strategy, we believe an upgrade is unlikely in the next year. However, we could raise the rating if leverage were sustained below 3x and FFO to debt were sustained above 30%, commensurate with an intermediate financial risk profile.
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