S&P Lifts Outlook on Accuride (ACW) to Stable

Standard & Poor's Ratings Services said today that it revised its rating outlook on Evansville, Ind.-based commercial vehicle component supplier Accuride Corp. (NYSE: ACW) to stable from negative and affirmed the 'B-' corporate credit rating on the company.

The 'B-' issue-level and '4' recovery ratings on the company's $310 million senior secured notes due 2018 remain unchanged. The '4' recovery rating indicates our expectation for average recovery (30%-50%) in the event of a payment default.

The rating on Accuride reflects our assessment of the company's financial risk profile. "The company's credit metrics are stabilizing, and we expect leverage of 5.3x as of year-end 2014 and 5.2x as of year-end 2015," said Standard & Poor's credit analyst Lawrence Orlowski. "We also expect positive free cash flow, based on our base-case assumptions, and liquidity of about $80 million by year end." However, we expect free operating cash flow (FOCF) to debt of less than 5% in 2014 and 2015.

The company's business risk profile reflects the high degree of cyclicality and intense price competition in the commercial vehicle industry. Furthermore, although we believe the company is transitioning out of its restructuring phase, we need to assess core business performance as commercial vehicle volumes rise.

The rating outlook is stable. We assume that Class 8 and 5-7 truck and trailer production in North America will increase by 10% in 2014. Moreover, the company is realizing benefits from of its investments over the past two years to strengthen its Wheels business and fix the Gunite business. We also expect positive free cash flow generation in 2014.

We could raise the rating if Accuride reduces leverage--as measured by debt to EBITDA, including our adjustments--to or below 5x and produces FOCF to debt of 5% or higher. For example, we estimate the debt to EBITDA could approach 5x or better if the company were to expand gross margins (excluding depreciation and amortization) to 17% or better and revenues rose at least 5%. Under such a scenario, we could revise our assessment of the company's financial risk profile to "aggressive" from "highly leveraged," which could support a one-notch upgrade under our criteria.

We could lower the rating if total cash plus available revolving credit falls significantly below $50 million. This could occur if the U.S. economy were to weaken in 2014 and 2015 and commercial truck demand declines, if the company loses significant business from its major customers, or if free cash flow drops below our expectation and further pressures liquidity. We could lower the rating if we believed the company would burn $20 million or more in cash flow in 2014.

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