LTI Holdings Inc. Outlook Revised To Negative From Stable On Operating Challenges; 'B-' Rating Affirmed
- On Nov. 20, 2019, LTI Holdings Inc. announced a product liability, weakening credit metrics.
- Also, sales to some of the company's key customers have underperformed our expectations. We now expect leverage to deteriorate to nearly 11x by year end.
- We are affirming our 'B-' issuer credit rating on the company and revising the outlook to negative from stable.
- At the same time, we are affirming our 'B-' issue-level rating on the company's $1.425 billion first-lien term loans and $125 million revolver with a '4' recovery rating, and the 'CCC+' rating on the company's $315 million second-lien term loan with a '5' recovery rating.
- The negative outlook reflects our belief that LTI's capital structure is nearing unsustainable levels given our expectation for leverage nearing 11x in 2019 and remaining above 9x in 2020. However, we expect LTI to maintain adequate liquidity throughout the forecast period.
NEW YORK (S&P Global Ratings) Nov. 26, 2019--S&P Global Ratings today took the rating actions listed above. The negative outlook reflects LTI's recently announced $200 million product liability, coupled with significant sales declines to some of the company's key customers. In our opinion, these factors will pressure credit metrics over the next year and increase the likelihood of a lower rating. However, it maintains adequate liquidity, especially relative to similarly related peers. Moreover, we think the coming buildout of 5G infrastructure could lead to good revenue growth.
The negative outlook on LTI reflects our belief that there is at least a 1-in-3 chance we could lower the ratings should revenue decline further and operational quality issues continue into 2020. We expect cash flow generation to remain positive over the next 12 months while leverage improves toward the mid-9x area over the next year.
We could lower our ratings on LTI if deteriorating operating performance constrains its liquidity position. This could occur, for example, from a deterioration in LTI's end markets, leading to large losses among major customers. We could also downgrade the company if we believe LTI's capital structure has become unsustainable in the long term, which could result from aggressive debt-financed acquisitions or further product liability issues.
We could revise our outlook to stable if the company's operations improve meaningfully. This would involve, among other things, further diversification of its customer base and management's adoption of a more conservative financial policy. Among other things, this would cause debt to EBITDA to improve toward 8x and EBITDA coverage ratio above 1.5x on a sustained basis.
Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate Issuers, Dec. 7, 2016
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- Criteria | Corporates | Industrials: Key Credit Factors For The Capital Goods Industry, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
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 S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Gilad Kopelman, New York + 1 (212) 438 1160; gilad.kopelman@spglobal.com |
| Secondary Contact: | Trevor T Martin, CFA, New York (1) 212-438-7286; trevor.martin@spglobal.com |
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