Accuride Corp. Downgraded To 'B-' From 'B'; Outlook Negative

  • Although Accuride Corp.'s North American wheels business continues to benefit from strong end-market demand, its North American wheel end business experienced some challenges in 2018. In addition, its Europe and Asia wheel business deteriorated due to a longer-than-expected anti-trust approval process, and we expect significant restructuring costs for this business in 2019. As such, debt leverage and cash outflows have increased beyond our previous expectations.
  • Therefore, we lowered our issuer credit rating on Accuride to 'B-' from 'B'. The outlook is negative.
  • At the same time, we lowered our issue-level ratings on the company's term loan to 'B-' from 'B'.
  • The negative outlook reflects the possibility of a downgrade if we don't anticipate cash flows turning positive in 2020 or if liquidity is constrained this year or next. This could occur if the company's restructuring efforts take longer or cost more than expected, end-market demand is significantly weaker than we assume, or tariffs or trade disputes negatively affect the company's earnings.
NEW YORK (S&P Global Ratings) March 14, 2019—S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects our expectation for 
continued negative free operating cash flow (FOCF) in 2019, as the company 
continues to restructure its Europe and Asia business. We now expect adjusted 
debt leverage will remain above 6x in 2019. This follows weaker than 
previously expected operating performance in 2018 partly due to customer 
volume decreases stemming from the prolonged approval process of the mefro 
Wheels GmbH acquisition as well as the unfavorable impact of higher raw 
material, offshore wheel-end product, and freight costs.

The negative outlook reflects our expectation for continued negative FOCF in 
2019 along with elevated debt leverage above 6x. The company has experienced 
customer volume decreases stemming from the prolonged approval process of the 
mefro acquisition as well as the unfavorable impact of higher raw material, 
offshore wheel-end product, and freight costs and we expect the restructuring 
costs associated with its Europe and Asia business will contribute a cash 
outflow in 2019.

We could lower the ratings within the next 12 months if we no longer 
anticipate FOCF will turn positive in 2020 or if liquidity becomes strained. 
This could occur as a result of weaker-than-expected operating performance due 
to additional unexpected costs arising from its restructuring initiatives, 
additional product supply constraints, any negative impact of tariffs or trade 
disputes, or a significant decline in commercial vehicle and trailer market 
demand. Overall, we could lower the ratings if we come to believe the company 
depends on favorable business, financial, and economic conditions to meet its 
financial commitments, or if we view the company's financial commitments as 
unsustainable in the long term.

We could revise the outlook to stable over the next 12 months if the company 
executes well on its restructuring plans for 2019 such that FOCF turns 
positive in 2020 and we expect the company will sustain this result, along 
with debt leverage that does not increase further. We would also look for 
adequate headroom under the financial covenants in its credit agreement.