Clarios Global L.P.

The stable outlook on sponsor-owned Clarios Global L.P. reflects our view that the company will continue to generate positive free operating cash flow (FOCF) over the next 12 months. We could raise our ratings on Clarios if it reports a solid operational performance and realizes its targeted cost savings, which it would demonstrate by expanding its margins. Moreover, we would expect the company lower its debt to EBITDA to 6.5x or below and generate FOCF to debt of more than 3% on a sustained basis. We could lower our ratings on Clarios if it experiences a greater-than-expected decline in the demand from its OEM and aftermarket customers because of, among other things, higher prices or a drop in consumer confidence

...We expect the company's financial performance to continue to improve in 2021 as its demand normalizes. Clarios increased its revenue by 6% year over year in its fiscal first quarter, primarily due to good aftermarket demand. Specifically, the company had adjusted EBITDA of $525 million (up 20% year over year) due to its solid volume, pricing, and sales mix, which were offset--in part--by increased transportation expenses. We expect the U.S. and Europe to both experience a greater than 4% increase in real GDP in 2021, which we anticipate will strengthen the aftermarket demand for the company's products. Furthermore, we forecast that original equipment manufacturer (OEM) demand for batteries will rebound as the volume of light-vehicle sales rises by 10%-15% in the U.S. and Europe in 2021. We see the company's ongoing restructuring actions as laying the foundation for improvements in its margins and cash flow generation. Over the medium term, Clarios has targeted about $400 million of run-rate...

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