SRAM LLC

The stable outlook reflects our expectation for good operating performance in SRAM's OEM and aftermarket channels, which combined with continued voluntary debt repayment with free cash flow will allow the company to reduce leverage through 2020. In addition, the rating outlook is stable even though our base-case forecast for leverage in the mid-2x area in 2019 might otherwise represent a sufficient cushion to incorporate future economic and operating volatility. This is because we believe the company may be willing to increase leverage to fund distributions or acquisitions. However, even if SRAM pursues leveraging transactions, we expect the company will sustain a cushion to our 5x adjusted debt to EBITDA downgrade threshold. Although a downgrade is unlikely in the near term

...We believe the company may be willing to increase leverage to fund distributions or acquisitions. SRAM LLC repaid about $90 million of debt from free cash flow in 2018, and we forecast that the company will further reduce leverage to the mid-2x area in 2019 from both EBITDA expansion and continued debt repayment. But we believe the company's owners may consider a debt-funded distribution that raises leverage above this base-case forecast. If SRAM pays a distribution that raises leverage closer to our 4x upgrade threshold, there would be less cushion to accommodate potential leveraging acquisitions and significant anticipated periodic operating volatility. As a result, an upgrade is unlikely. SRAM requires consistent product innovation to maintain market share. The company operates in the high-end bicycle component manufacturing industry, which requires consistent innovation to develop new products and maintain market share. As a result, half of its gross profit is derived from products...

Full Report