Neenah Enterprises Inc. Downgraded To 'CCC+' On Limited Covenant Headroom; Ratings Placed On CreditWatch Negative

  • S&P Global Ratings believes the U.S. is entering a recession due to disruptions from COVID-19, and we expect this poor macroeconomic environment to hurt U.S.-based iron castings and forged components manufacturer Neenah Enterprises Inc.'s operating performance in 2020.
  • We now expect the company's liquidity to be tight and headroom under the company's leverage covenant could drop below 5% in the upcoming quarter ending March 31, 2020.
  • As a result, we are lowering our issuer credit rating on Neenah to 'CCC+' from 'B'.
  • We are also lowering our issue-level rating on subsidiary Neenah Foundry Co.'s term loan by two notches, to 'B-' from 'B+', in line with the downgrade of the company. Our '2' recovery rating is unchanged.
  • At the same time, we are placing all of our ratings on the company on CreditWatch with negative implications, reflecting our view that the global macroeconomic slowdown due to the spread of COVID-19 will likely hinder the company's near-term earnings and cash generation, which could pressure liquidity or cause the company to breach its net leverage financial covenant over the next two quarters.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above. The CreditWatch placement reflects the 1-in-2 chance that we will lower our ratings on Neenah during the next 90 days if we expect the company to face a liquidity stress or breach its financial maintenance covenant over the upcoming four quarters.
We could lower our ratings on Neenah over the next 90 days if we believe the company will face a near-term liquidity crisis. We could also lower our ratings if we believe a breach of the company's leverage covenant is likely and it will be unable to obtain timely covenant relief through an amendment or waiver. We expect Neenah will have very limited or no cushion under its leverage covenant in the third and fourth quarter of 2020 and could breach the leverage covenant unless the covenant level is amended.
We could remove our ratings on Neenah from CreditWatch and/or raise our rating if we expect the company to maintain covenant headroom of more than 15% over the next 12 months. This could happen if the company obtains covenant relief through an amendment to its existing credit agreement, a refinancing, or if end markets materially rebound to normalized levels of activity. For a higher rating, we would also need to expect the company can comfortably cover its liquidity needs over the next 12 months.
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