S&P lowers Power Stop

S&P said it lowered its ratings for Power Stop LLC and its senior secured first-lien debt to CCC+ from B-. The 3 recovery rating (50%-70%; rounded estimate: 55%) is unchanged. The outlook is negative.

“The downgrade and negative outlook reflect Power Stop's sharply lower EBITDA margins and negative free cash flow, resulting in an unsustainable capital structure and limited liquidity. The company's results continued to weaken in the third quarter because of the decline in unit volumes and higher freight costs. These factors led to its EBITDA margins falling substantially to about 12% from the mid-20% area in the prior year,” the agency said in a press release.

S&P’s economists are forecasting a recession in 2023. The agency said it forecasts the recession will hurt Power Stop’s sales volumes.

“If demand for Power Stop's products is even weaker than our base-case forecast, the company's margins could further erode, putting pressure on an already unsustainable capital structure. We expect leverage to remain over 10x and that the company will generate negative free operating cash flow (FOCF) in both 2022 and 2023,” S&P said.

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