MRO Holdings Inc. is planning to use the proceeds from a new $225 million term loan to refinance its existing debt and fund its capacity expansion.



  • MRO Holdings Inc. is planning to use the proceeds from a new $225 million term loan to refinance its existing debt and fund its capacity expansion.
  • Therefore, we are assigning our 'B+' corporate credit rating to the aircraft maintenance company.
  • At the same time, we are assigning our 'B+' issue-level rating and '3' recovery rating to the company's proposed $225 million first-lien term loan B due 2023.
  • The stable outlook reflects our expectation that MROH's credit metrics will improve over the next 12 months on increased earnings and, possibly, some debt repayment.

  • Our ratings on MROH reflect the company's modest size, the limited scope of 
    its operations, and its high customer concentration. Our ratings also consider 
    the company's position as the largest provider in the niche market for 
    airframe maintenance, repair, and overhaul (MRO) services in the Americas, its 
    low-cost facilities in Latin America, and its good margins. MROH plans to use 
    the proceeds from its new $225 million term loan to refinance its existing 
    debt and fund its planned capacity expansion. We expect the company's leverage 
    to be somewhat high following this issuance, with pro forma debt-to-EBITDA of 
    4.5x-5.0x in 2017, but believe that it will improve steadily over the next few 
    years as MROH increases its earnings and repays its debt with excess cash.
    
    The stable outlook on MROH reflects our expectation that the company's revenue 
    and earnings will increase because of solid demand for its MRO services as it 
    expands its capacity. These expectations, in combination with the company 
    likely using its excess cash to pay down debt, will cause its credit metrics 
    to improve moderately over the next 12 months. We expect MROH's debt-to-EBITDA 
    to be below 4x and its FFO-to-debt ratio to be in the 16%-20% range in 2018.
    
    We could raise our ratings on MROH in the next 12 months if its FFO-to-debt 
    ratio increases above 20% or its debt-to-EBITDA declines below 3.5x. This 
    could occur if the demand for its services is much better than expected 
    because of either new customers or additional work from its existing 
    customers. We would also require the company to dedicate its excess cash to 
    reducing its debt in order to raise our ratings.
    
    Although unlikely, we could lower our ratings on MROH if its FFO-to-debt 
    declines below 12% or its debt-to-EBITDA increases above 5x in the next 12 
    months and we do not expect these measures to improve. This could occur 
    because of lower-than-expected demand from the company's airline customers 
    (because air traffic growth slows) or if it is unable to fill its planned 
    hangar expansion (causing its margins to decline). Although less likely, this 
    could also occur if the company returns excess cash to its shareholders 
    instead of using it to reduce its debt.