Sabre Industries Inc. Rating Raised To 'B', Outlook Stable; Debt Rating Raised To 'B+'
- We expect U.S.-based engineered support structure manufacturer Sabre Industries Inc. to maintain the improvements in its credit measures, with adjusted leverage under 6x, down from about 10x over the past year, due to higher volumes and favorable pricing, along with continued efficiency gains.
- As a result, we are raising our corporate credit rating on Sabre to 'B' from 'B-'. The outlook is stable.
- At the same time, we are raising our issue-level rating on the company's senior secured credit facilities to 'B+' from 'B'. The recovery rating is unchanged at '2'.
- The stable outlook reflects our expectations that Sabre's operating performance will remain solid over the next 12 months, supported by favorable long-term demand trends among electric utilities and wireless customers, resulting in adjusted debt to EBITDA between 5x and 6x.
NEW YORK (S&P Global Ratings) Feb. 21, 2018--S&P Global Ratings today raised its corporate credit rating on Alvarado, Texas-based Sabre Industries Inc. to 'B' from 'B-'. The outlook is stable. At the same time, we raised our issue-level ratings on the company's $45 million revolving credit facility due 2020 and $255 million term loan due 2022 to 'B+' from 'B'. The recovery rating remains '2', indicating our expectation of substantial (70%-90%; rounded estimate: 75%) recovery in the event of a payment default. The upgrade reflects the sustained improvement in Sabre's operating results due to increased volume (particularly in its utility structures segment), combined with favorable pricing across its segments. We now expect Sabre to produce adjusted leverage of about 5.5x in fiscal 2018 (ending April 30, 2018), with further improvement to 5x-5.5x in fiscal 2019 due to improved EBITDA levels resulting from higher volumes and better pricing. At the same time, we expect adjusted EBITDA interest coverage to remain between 2x and 2.5x in fiscals 2018 and 2019. In our view, credit metrics are healthier than our previous expectations of adjusted leverage of 6.5x and EBITDA interest coverage of 1.75x, and current credit metrics are supportive of a higher rating. The stable outlook reflects our expectations that Sabre's operating performance will remain solid over the next 12 months, supported by favorable long-term demand trends from key transmission and distribution and wireless communications customers. In our view, this will result in adjusted leverage of about 5.5x in fiscal 2018 with further improvement to between 5x and 5.5x in fiscal 2019--levels in line with the current rating. At the same time, we expect EBITDA interest coverage to remain between 2x and 2.5x over the same time period. Although unlikely, we could lower our ratings on Sabre if the recent improvement in EBITDA generation were to reverse, potentially due to a significant delay in capital spending from the company's larger customers or a sharp decrease in steel prices whereby margin compression would offset lower costs. In either of these scenarios, Sabre's consolidated business could be negatively affected, resulting in adjusted leverage sustained above 7x and EBITDA interest coverage approaching 1.5x. We view an upgrade over the next 12 months as equally unlikely given the company's ownership by a financial sponsor and our view of Sabre's overall business. However, we could raise the rating if adjusted leverage fell below 4x on a sustained basis and Sabre exhibited less concentration risk, presumably due to a more diverse business and greater resiliency to changes in steel prices. Notably, an upgrade would require a commitment from Sabre's private equity owners to keep leverage at these lower levels over the long-term.
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Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Michael Maggi, CFA, New York (212) 438-7302; Michael.Maggi@spglobal.com |
| Secondary Contact: | Thomas J Nadramia, New York 212-438-3944; thomas.nadramia@spglobal.com |
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