Trico Group LLC Outlook Revised To Negative On Acquisition-Related Risks, 'B' Rating Affirmed; New Debt Rated


  • Trico Group LLC has recently acquired Airtex and ASC and plans to acquire FRAM Group. Consequently, we expect Trico's debt leverage will rise as it seeks funding to pay for its purchase of FRAM.
  • On Feb. 6, 2019, S&P Global Ratings revised its outlook on Trico to negative from stable and affirmed its 'B' issuer credit rating on the company and 'B' issue-level rating on the company's existing term loan.
  • At the same time, we assigned a 'B' issue-level rating and a '3' recovery rating to the proposed $235 million term loan B-2. We also withdrew the 'BB-' issue-level rating on the company's asset-based lending (ABL) revolving credit facility at the issuer's request.
  • The negative outlook reflects integration risks over the next 12 months, inherent with acquiring operations whose total sales exceed that of existing Trico Group.
TORONTO (S&P Global Ratings) Feb. 6, 2019--S&P Global Ratings today took the 
rating actions listed above. The negative outlook reflects our view that there 
is at least a one-third chance that the integration risks arising from the 
planned purchase of FRAM and recent acquisition of ASC and Airtex could result 
in weaker-than-expected credit metrics over the next 12 months. Trico is 
planning on issuing a $235 million term loan B-2 and a $100 million 
second-lien term loan, as well as upsizing its existing ABL to $150 million, 
while drawing $30 million on it, to fund the acquisition. We expect debt to 
EBITDA to be about mid-to-high 5x in fiscal 2019, assuming all one-time 
transaction and restructuring charges occur in this time period, and to 
improve to mid-4x by 2020, as the company realizes cost savings and pays down 
some of its debt.

Our negative outlook reflects the integration risks associated with the 
proposed FRAM acquisition, as well as the recently completed Airtex and ASC 
acquisitions. Although we recognize the strategic motivations behind these 
acquisitions, we believe the magnitude of more than doubling its revenue 
presents opportunities for missteps. In addition, FRAM, Airtex, and ASC have 
all been experiencing declining revenues, and a weakening macroeconomic 
environment could result in unanticipated headwinds.
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