LKQ Corp.

The stable outlook on LKQ reflects the company's sound credit metrics and our expectation that it will maintain leverage of less than 4x and a free operating cash flow (FOCF)-to-debt ratio of more than 10% on a sustained basis. We could lower our ratings on LKQ if debt to EBITDA moves above 4x or its FOCF-to-debt ratio falls below 10% on a sustained basis. This could occur if vehicle miles traveled and the number of collisions remain weak because governments extend shelter-in-place orders or because driver behavior changes such that miles driven fails to recover. It could also occur because of operating problems, a loss of business, inability to efficiently integrate acquired properties, or other adverse market conditions such as

...The global pandemic has increased the risk to LKQ's businesses. Demand for LKQ's products are driven by vehicle miles traveled, which in turn impacts demand for replacement parts for normal maintenance and collisions. Demand for services like collision repair fell 40% to 50% recently as governments imposed shelter-in-place orders. We expect vehicle miles traveled will recover, but it is not clear to what level and when. As result, we believe LKQ's sales and margins will fall in 2020 and credit metrics will temporarily weaken. LKQ has taken various cost-saving actions, reduced capex, and suspended share repurchases. In our base-case scenario, LKQ will still generate free cash flow and maintain strong liquidity. LKQ mapped out a plan to improve margins in Europe significantly through its "1 LKQ Europe" plan, but we expect any benefits will be delayed because of the current slowdown. It will likely take longer to rollout a uniform ERP system and procurement savings will be harder to negotiate...

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