S&P Upgrades Wabtec's (WAB) CCR to 'BBB'; Notes 'Modest' Credit Profile

Standard & Poor's Ratings Services today raised its corporate credit and senior unsecured debt ratings on Wabtec (NYSE: WAB) to 'BBB' from 'BBB-'. The outlook is stable.

"We based our upgrade primarily on a reassessment of Wabtec's financial risk profile, as defined in our criteria, reflecting our view that the company's credit measures will remain supportive of a 'modest' financial risk profile," said Standard & Poor's credit analyst Svetlana Olsha.

"Wabtec has demonstrated a more disciplined approach to debt-funded activities than we had expected, and the company's good operating performance has contributed to increased capacity for debt-funded acquisitions in the $1 billion area. We also believe the company has modestly reduced its exposure to the highly cyclical freight car original equipment manufacturer (OEM) market, which should result in relatively stable leverage metrics in an economic downturn," said Ms. Olsha.

The stable outlook reflects our view that Wabtec will continue to generate good operating results and adhere to a moderate financial policy while it pursues debt-funded acquisitions. We also expect the company to remain focused on its rail-related end markets, limiting its diversity and scale.

We could raise the rating if the company improves its scope, scale, and end-market diversity significantly, organically or via acquisitions, while maintaining its relatively stable profitability, and debt leverage that continue to support the modest financial risk profile. We could also raise the rating if Wabtec adopts a more conservative financial policy resulting in leverage metrics remaining above 60% FFO to debt and below 1.5x debt to EBITDA.

We could lower the rating if the company's operating performance deteriorates or if it pursues a more aggressive financial policy than we expect, such that debt-financed acquisitions or shareholder-friendly activities result in debt to EBITDA greater than 2x and FFO to debt declining to less than 45% on a sustained basis.

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