Kennametal Inc. Outlook Revised To Negative On Expected Drop In Demand; 'BBB' Rating Affirmed

  • Demand for Kennametal Inc.'s products is likely to decline materially--at least over the near term--because of the economic fallout from the spread of COVID-19. In addition, global financial conditions have deteriorated substantially.
  • We are revising our outlook to negative from stable and affirming our 'BBB' long-term issuer credit rating on the U.S.-based metalworking tool maker.
  • The negative outlook reflects the potential for a lower rating over the next few quarters if sales and EBITDA decline significantly, most likely due to an adverse economic impact from COVID-19 and the oil price war, resulting in adjusted leverage sustained above 3x.
NEW YORK (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above.
The rating action reflects the probability that weak global macroeconomic conditions sparked by the COVID-19 pandemic will significantly reduce demand for Kennametal's products over the near term and cause credit ratios to deteriorate, including adjusted leverage nearing 3x or more. Adjusted leverage as of Dec. 31, 2019, was about 2.2x.
The negative outlook reflects the potential for a lower rating over the next few quarters if sales and EBITDA decline materially, most likely due to an adverse economic impact of COVID-19 and the oil price war.
We could lower the rating if we forecast Kennametal will sustain adjusted leverage over 3x due to the global macroeconomic environment worsening significantly, including substantially weaker demand in its key industrial, transportation, and energy markets. Rating pressure could also result if Kennametal makes large, debt-financed acquisitions or share repurchases, though we believe this is unlikely over the near term.

Although unlikely, we could revise our outlook to stable if the risk of a sustained economic downturn recedes and demand for Kennametal's products begins to materially improve such that we project adjusted leverage will be sustained below 3x. This could occur if COVID-19 risks dissipate and businesses within Kennametal's key end markets quickly return to normal operating levels.
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