Spirit AeroSystems (SPR) Upgraded to 'BB' by S&P; Notes Improvement in Credit Ratios

Standard & Poor's Ratings Services today raised its corporate credit rating on U.S.-based aerostructures manufacturer Spirit AeroSystems Inc. (NYSE: SPR) to 'BB' from 'BB-'. The rating outlook is positive.

At the same time, we raised our issue-level ratings on the company's $1.2 billion senior secured credit facility (which comprises a $650 million revolver and now $535 million term loan) to 'BBB-' from 'BB+'. The recovery rating remains '1', which indicates our expectation for very high (90%-100%) recovery in a payment default scenario.

We also raised our issue-level ratings on the company's unsecured debt to 'BB-' from 'B+'. The recovery rating remains '5', indicating our expectation for modest (10%-30%) recovery in a payment default scenario at the high end of the range.

"The upgrade reflects the improvement in Spirit's credit ratios in 2014, stemming from better profitability and cash flow. In addition, the company reduced a material risk to future earnings by divesting its Gulfstream wing business," said Standard & Poor's credit analyst Chris Denicolo.

The rating outlook is positive. Spirit AeroSystems reduced a large amount of risk in 2014 by divesting the Gulfstream wing program and making progress in reducing costs, but the A350 is still early in its production and the company still needs to put in a long-term pricing agreement with Boeing. Standard & Poor's expects credit ratios in 2015 to moderate somewhat from very strong levels in 2014, but this depends on how the company decides to divide its cash flow among internal investment, shareholder rewards, and acquisitions.

We could raise the rating in the next 12 months if the company is able to maintain current profitability, reach a reasonable long-term agreement with Boeing, not have any material charges on the A350 or other programs, and pursue a financial policy allows funds from operations (FFO) to debt to stay above 50%.

We could revise the outlook back to stable if recent improvements in profitability and cash generation do not appear sustainable, a new Boeing agreement is not reached or is reached on terms that are unfavorable, the company records material charges on the A350 or other programs, or management's financial policy results in sustained FFO to debt below 45%.

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