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

Standard & Poor's Ratings Services said today that it has lowered its corporate credit rating on Triumph Group Inc. (NYSE: TGI) to 'BB' from 'BB+'. The outlook is negative.

At the same time, we lowered all of our issue-level ratings on the company by one notch. Our recovery ratings on Triumph's debt are unchanged.

"The downgrade reflects that Triumph Group's revenues and earnings will likely be much lower than we had previously expected because of cuts in the production rates of the Boeing 747-8, Airbus A330, and Gulfstream G450/550, the end of the C-17 military cargo aircraft program, and recently announced delays in the production of the Bombardier Global 7000," said Standard & Poor's credit analyst Christopher Denicolo. Triumph's cash flows over the next two years will also be constrained by outflows related to the Gulfstream G650/G280 wing programs and the company's transition to become a full cash tax payer in fiscal-year 2017 (ending March 31, 2017). We also expect that the company will continue to pursue small- to mid-sized acquisitions and undertake share repurchases, so any debt reduction in excess of the scheduled amortization of Triumph's debt is unlikely. For fiscal-year 2016, we now expect Triumph to post a debt-to-EBITDA metric of 3.7x-4.1x, a funds from operations (FFO)-to-debt ratio of 15%-19%, and a free operating cash flow (FOCF)-to-debt ratio of 6%-10% before its metrics improve modestly in fiscal-year 2017 as its revenue growth resumes and its margins improve. This compares with our previous expectations for fiscal-year 2016 of a debt-to-EBITDA metric of 2.5x-3.0x, a FFO-to-debt ratio of 30%-35%, and a FOCF-to-debt ratio of 17%-20%.

The negative outlook reflects the challenges that Triumph is facing to improve its profitability and replace its declining sales on certain widebody jetliners, business jets, and military programs. These challenges could prevent the company from improving its credit ratios over the next 12 months as we had expected.

We could lower our rating on Triumph if its debt-to-EBITDA metric remains above 4x over the next 12 months and will not likely improve. This could occur if the company is unable to improve its profitability, if the declines in certain of Triumph's programs are greater than we currently expect, or if the company's acquisitions or share repurchases are significantly larger than we had expected in our base-case forecast.

We could revise our outlook on the company to stable if Triumph makes progress in addressing its declining revenues and profitability and does not materially increase its leverage to fund acquisitions or share repurchases, such that its debt-to-EBITDA metric declines below 3.5x.

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