S&P rates Arsenal, loan B+

S&P said it assigned B+ ratings to Arsenal AIC Parent LLC and its planned $1 billion term loan. The loan’s recovery rating is 3, indicating average (50%-70%) recovery if the company defaults. The outlook is stable.

Apollo Global Management Inc. and Irenic Capital Partners are acquiring aluminum rolled products company Arconic Corp., a leading aluminum sheet and plate producer for aerospace, industrial, and ground transportation, and will buy it through Arsenal.

“Arsenal's new capital structure will consume substantial cash for interest and financial sponsor ownership will exclude cash from debt calculations. The refinancing of Arconic's debt will highlight the negative impact of higher interest rates on cash flows. Most of the company's existing debt was priced in 2020 and 2021, and we estimate a current effective interest cost of about 6.5%. Repricing a larger debt quantum at today's rates could more than double recent cash interest costs,” S&P said in a press release.

Additionally, the agency noted, “Plant disruptions and high costs put a dent in earnings. S&P Global Ratings-adjusted run-rate EBITDA had held steady around $700 million since mid-2021, but plant disruptions in late 2022 could cost about $100 million of EBITDA, and operations are on the way back to steady production in 2023. Should operations resume their run-rate in the second half of 2023 and small capacity expansions ramp up in 2024, we believe that last 12-months (LTM) run-rate EBITDA of $675 million-$700 million could grow toward $800 million in 2024.”

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