S&P Lowers Outlook on MasTec (MTZ) to Negative; Notes Elevated Debt-to-EBITDA Metric

Standard & Poor's Ratings Services said that it has revised its outlook on Florida-based MasTec Inc. (NYSE: MTZ) to negative from stable and affirmed its 'BB' corporate credit rating on the company.

At the same time, we affirmed our 'BB-' issue-level rating on the company's $400 million senior unsecured notes due 2023.

"The outlook revision reflects that there is a one-in-three chance that we could lower our corporate credit rating on MasTec during the next year if we believe that its adjusted debt-to-EBITDA metric will remain above 3.5x for an extended period," said Standard & Poor's credit analyst Michael Durand. Specialty engineering and construction (E&C) contractor MasTec sustained weaker-than-expected credit measures in 2015 due to weak market conditions and execution issues. Although we expect the company's performance to improve in 2016, we recognize that there are uncertain trends in some of its end markets and acknowledge that its results may once again fall short of our expectations. While MasTec's backlog has grown by 10% year-over-year to $4.6 billion as of Sept. 30, 2015, there may potentially be project cancellations and deferrals in the company's expected work due to instability in its end markets. Over the long term, however, we expect that telecommunications companies will continue to upgrade their infrastructure and that oil and gas companies will continue to expand their network of long-haul pipelines.

The negative outlook on MasTec reflects that there is a one-in-three chance that we could lower our rating on the company over the next 12 months if the company continues to face challenging operating conditions and its performance does not improve following the weaker-than-expected results it posted in 2015.

We could lower our rating on MasTec if its operating performance does not improve and we expect that its adjusted debt-to-EBITDA metric will remain above 3.5x for an extended period. Although less likely, we could also lower our rating on the company if its free operating cash flow becomes negative because of continued weakness in its end markets, declining global industrial production, or low oil prices.

We could revise our outlook on MasTec to stable if the company's operating performance improves, causing its adjusted debt-to-EBITDA to improve to between 2x and 3x over the business cycle. While this leverage parameter is supportive of an intermediate financial risk profile, we would most likely assess the company's financial risk profile as significant because of our volatility adjustment, as its cash flow/leverage ratios could shift by one or two categories during periods of stress. At the same time, we would expect MasTec to demonstrate financial policies that are in line with the current rating, notably by refraining from undertaking debt-financed share repurchases or acquisitions that would cause its adjusted debt-to-EBITDA metric to remain above 3x.

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