Research Update: Harbor Freight Tools Outlook Revised To Stable From Negative On Solid Earnings And Dividends; 'BB-' Rating Affirmed

Discount tool and equipment retailer Harbor Freight Tools USA Inc. is issuing a new $3 billion first-lien term loan due 2027, which along with $300 million in cash, will redeem about $2.2 billion of existing debt, fund a large distribution to shareholders, and cover fees. We estimate pro forma leverage will increase to 4.4x for the 12 months ended July 31, 2020, from 3.6x. We believe the increased leverage is still consistent with our existing rating. We are revising the outlook to stable from negative and affirming our 'BB-' issuer credit rating. We are also assigning our 'BB-' and '3' recovery ratings to Harbor Freight's proposed term loan. The stable outlook reflects our expectation that Harbor Freight's good performance momentum

...- Discount tool and equipment retailer Harbor Freight Tools USA Inc. is issuing a new $3 billion first-lien term loan due 2027, which along with $300 million in cash, will redeem about $2.2 billion of existing debt, fund a large distribution to shareholders, and cover fees. - We estimate pro forma leverage will increase to 4.4x for the 12 months ended July 31, 2020, from 3.6x. We believe the increased leverage is still consistent with our existing rating. - We are revising the outlook to stable from negative and affirming our '##-' issuer credit rating. - We are also assigning our '##-' and '3' recovery ratings to Harbor Freight's proposed term loan. - The stable outlook reflects our expectation that Harbor Freight's good performance momentum will continue, albeit at a moderating pace, supporting modest deleveraging....

Research Update