Research Update: AAR Corp. Downgraded To 'BB' From 'BB+', Outlook Stable; Proposed Unsecured Notes Rated 'BB'

AAR Corp. plans to acquire Triumph Group Inc.'s Product Support business, which it will fund mainly with the proceeds from new debt. We expect credit metrics to be negatively affected by the sizable debt undertaking. However, we also expect a successful integration of the acquisition and favorable market conditions to support gradual improvement in the medium term. Therefore, we lowered our issuer credit rating on AAR Corp. to 'BB' from 'BB+'. The outlook is stable. We also assigned our 'BB' issue-level rating and '3' recovery rating (50%-70%; rounded estimate: 65%) to the company's proposed $500 million senior unsecured notes. The stable outlook reflects our expectation that credit metrics will improve over the next two years owing to a successful integration

...- AAR Corp. plans to acquire Triumph Group Inc.'s Product Support business, which it will fund mainly with the proceeds from new debt. - We expect credit metrics to be negatively affected by the sizable debt undertaking. However, we also expect a successful integration of the acquisition and favorable market conditions to support gradual improvement in the medium term. - Therefore, we lowered our issuer credit rating on AAR Corp. to '##' from '##+'. The outlook is stable. - We also assigned our '##' issue-level rating and '3' recovery rating (50%-70%; rounded estimate: 65%) to the company's proposed $500 million senior unsecured notes. - The stable outlook reflects our expectation that credit metrics will improve over the next two years owing to a successful integration of Triumph's Product Support business and positive market conditions that favor AAR's higher-yielding business lines. As EBITDA grows and management applies free cash flow to debt reduction, we expect leverage to improve...

Research Update