PS Holdco LLC Ratings Lowered To 'B' From 'B+' On Weaker-Than-Expected Credit Metrics; Outlook Negative

  • We currently anticipate PS Holdco LLC's revenues and cash flow to be weaker than previously expected, driven by an economic slowdown in the company's end markets.
  • Therefore, we lowered our issuer credit rating on the company to 'B' from 'B+'. The outlook is negative. We also lowered our issue-level rating on the company's term loan to 'B' from 'B+'.
  • The negative outlook reflects the uncertainty surrounding the duration and severity of the COVID-19 pandemic and the effect on PS Holdco, its customer base, and freight demand.
NEW YORK (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above.
We assume freight volumes in the company's end markets could weaken due to the coronavirus' impact on the U.S. economy.  With flat GDP in the U.S. in 2020, we expect the coronavirus pandemic to hurt demand for PS Holdco's freight shipping services. The company serves the building materials, steel, aluminum, pipe and tube, and industrial products industries. As a result, we expect revenues to decline, with lower EBITDA margins, and the company's debt leverage to increase this year.
The negative outlook on PS Holdco reflects our expectation that demand in the company's end markets could weaken due to the impact of the coronavirus, resulting in lower freight volumes and weakening credit metrics. We assume PS Holdco's debt leverage will rise in 2020 as a result.
We could lower our ratings on PS Holdco in the next 12 months if we believed adjusted debt to EBITDA would increase above 6x or that funds from operations (FFO) to debt would decline to below 6%. This could occur if a downturn in the economy and weaker industrial production caused the flatbed market to weaken beyond our expectations.
We could revise our outlook to stable if PS Holdco maintained adjusted debt to EBITDA approaching 5x and an FFO-to-debt ratio approaching 12% on a sustained basis. This could occur if, for example, the company's end markets improved, along with increased EBITDA margins and higher debt paydown than we anticipated.
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