S&P Upgrades Wabash National (WNC) to 'BB'; Notes Good Operating Performance

May 6, 2016 2:32 PM EDT

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S&P Global Ratings said that it has upgraded Wabash National Corp. (NYSE: WNC) to 'BB' from 'BB-'. The outlook is stable.

At the same time, we raised our issue-level rating on the company's term loan to 'BB+' from 'BB'. The '2' recovery rating remains unchanged, indicating our expectation for substantial (70%-90%; lower half of the range) recovery in the event of a payment default.

"The upgrade reflects Wabash's good operating performance, which we expect will continue based on the company's execution of its growth and diversification strategies over the last several years, the currently healthy pricing environment in its trailer products segment, and its operational improvements," said S&P Global credit analyst Robyn Shapiro. "These factors, along with some debt reduction over the last year, have contributed to the company's strong credit metrics, and we believe that Wabash could maintain a FOCF-to-debt ratio of greater than 15% and a debt-to-EBITDA metric of less than 3x through the business cycle despite its large exposure to the more commodity-like trailer segment."

The stable outlook on Wabash reflects our view that the company will be able to maintain FOCF-to-debt ratio of at least 15% and a debt-to-EBITDA metric meaningfully below 3x over the next 12 months.

Although not incorporated in our base-case forecast, we could lower our ratings on Wabash if its FOCF-to-debt ratio fell below 15% or its debt-to-EBITDA metric surpassed 3x for a sustained period. This could occur if meaningfully weaker-than-expected demand in the cyclical North American trailer market caused the company's production to decline or reversed the good results from its diversified products division.

Though unlikely in the next 12 months, we could raise our ratings on Wabash if we were to believe that the company's business risk position had improved. For example, we would look for increased stability in the company's profitability over the next cyclical downturn in trailer demand.



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