Research Update: LKQ Corp. Outlook Revised To Positive On Sustained Deleveraging And Improving Operating Efficiency, 'BB+' ICR Affirmed

LKQ Corp.'s operating performance has exceeded our previous expectations and it continues to generate strong free cash flows and pay down debt despite its weak collision volumes relative to pre-pandemic levels. Therefore, we revised our outlook on the company to positive from stable and affirmed our 'BB+' issuer credit rating. At the same time, we raised our issue-level rating on LKQ's cash flow revolver to 'BBB-' from 'BB+' and revised our recovery rating to '2' from '3'. The '2' recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 75%) recovery in the event of a default. The positive outlook reflects the potential that we will raise our rating over the next 12 months if the company maintains its improved

...- LKQ Corp.'s operating performance has exceeded our previous expectations and it continues to generate strong free cash flows and pay down debt despite its weak collision volumes relative to pre-pandemic levels. - Therefore, we revised our outlook on the company to positive from stable and affirmed our '##+' issuer credit rating. - At the same time, we raised our issue-level rating on LKQ's cash flow revolver to '###-' from '##+' and revised our recovery rating to '2' from '3'. The '2' recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 75%) recovery in the event of a default. - The positive outlook reflects the potential that we will raise our rating over the next 12 months if the company maintains its improved European margins and demonstrates its commitment to sustain a reduced level of leverage. We expect LKQ to maintain leverage of 2x-3x and free operating cash flow (FOCF) to debt of well above 15%. We also anticipate the company's will maintain or...

Research Update