Allegion PLC

S&P Global Ratings' stable outlook on Allegion PLC reflects our expectation that the company, absent a sizable acquisition and after considering a more than 25% reduction in sales due to coronavirus-induced demand decline, will maintain adjusted debt-to-EBITDA leverage of approximately 2x-2.5x over the next two years. Our scenario envisions above-average EBITDA margin even after some contraction in 2020. We would consider a negative rating action if reduced demand on account of the impending recession causes revenues to decline more than 50% or causes EBITDA margins to contract by 5%. This would cause leverage to rise well above 3x. However, under our current baseline assumptions, we expect Allegion to continue to generate robust cash flow and exhibit strong credit ratios over

...Reduced residential and commercial spending will limit Allegion's revenue growth and EBITDA generation; however we still expect credit metrics to remain strong. We expect global residential and commercial construction and repair and remodel activity to decline drastically in the first half of 2020. As a result, we anticipate Allegion PLC's revenues will decline by at least 25% in 2020. However, with very manageable capital spending requirements, we expect the company to maintain strong free cash flow generation. As a result, we expect leverage to remain in the 2x-2.5x range in 2020 and 2021, supportive of the current rating. We believe leverage could deteriorate if the company increases its pace of acquisitions, which is not currently anticipated in our base case. Although the impact of the coronavirus pandemic will be felt across the security device industry, Allegion will likely maintain leading market share and strong brand name recognition in the U.S. The embedded high importance of...

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