Research Update: Leather S.p.A., Parent Of Auto Leather Producer Pasubio, Assigned 'B' Rating; Outlook Stable

Italy-headquartered Leather S.p.A. (doing business as Pasubio) is a niche auto supplier focused on high-quality leather for passenger car seating and interiors, benefiting from exposure to the premium and luxury car segments and high S&P Global Ratings-adjusted EBITDA margins of 17%-22% in 2019-2022. Private equity firm PAI Partners acquired the business from CVC Capital in a leveraged buyout (LBO) transaction that closed as expected and which we estimate will increase Pasubio's adjusted debt to EBITDA to 6.0x-6.5x in 2021 from 2.5x in 2020. At the same time, we expect a progressive reduction in leverage toward 5x in 2022 and 2023, supported by resilient revenue and the ability to offset cost inflation with a combination of pass-throughs and efficiency measures. We

...- Italy-headquartered Leather S.p.A. (doing business as Pasubio) is a niche auto supplier focused on high-quality leather for passenger car seating and interiors, benefiting from exposure to the premium and luxury car segments and high S&P Global Ratings-adjusted EBITDA margins of 17%-22% in 2019-2022. - Private equity firm PAI Partners acquired the business from CVC Capital in a leveraged buyout (LBO) transaction that closed as expected and which we estimate will increase Pasubio's adjusted debt to EBITDA to 6.0x-6.5x in 2021 from 2.5x in 2020. - At the same time, we expect a progressive reduction in leverage toward 5x in 2022 and 2023, supported by resilient revenue and the ability to offset cost inflation with a combination of pass-throughs and efficiency measures. We also anticipate the company will sustain free operating cash flow (FOCF) before working capital effects of 15 million-25 million annually, supported by earnings and modest capital expenditure (capex) requirements. - We...

Research Update