SRAM LLC

The stable outlook reflects our expectation for revenue and EBITDA growth to moderate somewhat in 2021 following the demand surge in 2020, for EBITDA coverage of interest expense to remain above 10x, and that the company will continue to dedicate substantial free cash flow to paying down debt, resulting in leverage in the mid-1.5x area in 2021. However, further ratings upside is unlikely at this time, given the company's tolerance for leverage of up to 3x and high potential future operating volatility. We could lower the rating if revenue and EBITDA volatility increases, to where we believe the company will not be able to sustain leverage below 4x. Although unlikely, we would consider higher ratings if the company continues utilizing

...Good cushion compared to the 4x downgrade threshold, although ratings upside is unlikely given potential operating volatility and the company's tolerance for leveraging distributions. SRAM ended 2020 with lease-adjusted debt to EBITDA of 1.5x because the company continued using discretionary cash flow to voluntarily prepay its term loan due 2024, paying down about $84 million during the year. Additionally, the growing popularity of cycling as a recreational, socially distant activity generated a spike in bicycle sales, particularly lower-end bikes, in the second half of 2020. SRAM's aftermarket sales, which tend to be high margin, grew faster than their original equipment (OEM) segment. This, coupled with reduced travel and advertising costs, drove adjusted EBITDA growth of 17% in 2020. That said, S&P Global Ratings believes the surge in demand could moderate later in 2021 as travel restrictions ease and out-of-home entertainment options expand. The company's financial policy tolerance...

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