Moody's Upgrades Wabash National (WNC) to 'Ba3'; Outlook Stable

Moody's Investors Service ("Moody's") upgraded the ratings of Wabash National Corporation (NYSE: WNC), including the Corporate Family Rating ("CFR") to Ba3 from B1. Moody's also assigned a Ba3 rating to the new $192.8 million senior secured term facility due 2022 that the company is arranging. The proceeds of the new facility will be used to repay in full the outstanding balance of the company's existing senior secured facility, which matures in 2019. The liquidity rating of Wabash was upgraded to SGL-1 from SGL-2. The rating outlook remains stable.

RATINGS RATIONALE

The Ba3 CFR of Wabash takes into account the company's leading market position in the truck trailer manufacturing market, its ability to generate strong cash flows and the company's prudent financial management which has helped to strengthen its ability to contend with the severe cyclicality in the demand for trailers.

Moody's considers the severe industry cyclicality the principal risk that the company faces. At the same time, margins in the Commercial Trailer Products segment, which accounts for two thirds of the company's revenues, are thin, which does not provide much cushion in the event of sudden weakness in the demand for the company's products. Moody's believes that Wabash has mitigated this risk (i) by growing its higher margin and relatively less cyclical Diversified Products segment and (ii) by strengthening its credit profile through deleveraging its balance sheet and pro-actively extending its debt maturities at a time when market conditions are favorable.

Wabash has benefited in recent years from an upswing in the demand for new trailers, as freight demand strengthened, trucking capacity tightened and customers started replacing ageing equipment. These conditions help to underpin strong cash flow generation, with funds from operations of more than $100 million annually. The company prudently deployed almost $100 million of cash towards debt repayment following its acquisition of liquid-tank manufacturer Walker Group Holdings in 2012, which helped to reduce leverage to 2.3 times, calculated as Debt to EBITDA on a Moody's adjusted basis.

Moody's considers the liquidity profile of Wabash to be very good (SGL-1). The company maintains a very sizeable cash balance, generates ample cash flow to fund its limited capital expenditures and there are no material debt maturities until 2018 when its $150 million senior unsecured convertible notes mature.

The rating for the new senior secured term facility is Ba3, equal to the Ba3 CFR. In determining this rating using its Loss Given Default analysis, Moody's ranks the existing $150 million senior secured revolving credit facility senior to the new term facility, in view of the first-priority lien of the revolving credit facility on such assets as accounts receivables and inventory, on which the new term facility has a second-priority lien.

The stable rating outlook is predicated on Moody's expectation of healthy demand for new trailers over the next 12 to 18 months, resulting in moderate revenue growth and (adjusted) operating income margins of around 6.5%. Moody's anticipates Debt to EBITDA to remain around the current level of 2.3 times, as any share repurchases are likely to be funded with free cash flow.

The ratings could be downgraded if demand expectations for trailers weaken materially, such that (adjusted) operating margins would decrease to 5.0% or less, or if such market conditions occur when the company is reliant on external uncommitted sources to fund near-term debt maturities. Downward pressure on the ratings could also follow if Debt to EBITDA is expected to increase to more than 3.0 times on a sustained basis.

A ratings upgrade could follow if Wabash executes its diversification strategy successfully with moderate use of debt, such that the company is able to demonstrate limited pressure on profitability, cash flow and credit metrics in the event of sudden weakness in trailer demand.

Upgrades:

..Issuer: Wabash National Corporation

.... Corporate Family Rating, Upgraded to Ba3 from B1

.... Probability of Default Rating, Upgraded to Ba3-PD from B1-PD

.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

Assignments:

..Issuer: Wabash National Corporation

....Senior Secured Bank Credit Facility, Assigned Ba3 (LGD4)

Outlook Actions:

..Issuer: Wabash National Corporation

....Outlook, Remains Stable

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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