MicroVision MOVIA lidar gains support on NVIDIA DRIVE AGX platform
Investing.com -- S&P Global Ratings downgraded Advance Auto Parts (NYSE:AAP) Inc. to ’BB’ from ’BB+’ on Thursday, citing elevated leverage and execution risks associated with the company’s multi-year turnaround plan.
The rating agency assigned a negative outlook to the auto parts retailer, reflecting concerns about the company’s ability to successfully implement its strategic initiatives aimed at strengthening merchandising and improving parts availability.
S&P expects Advance Auto Parts’ adjusted leverage to peak at approximately 6x by the end of 2025 before improving to around 4x in 2026, which is higher than previously projected. The leverage metrics include $3 billion in unsecured notes following a proposed debt issuance and $2.3 billion in operating leases, plus more than $1.5 billion in financial obligations from its supply chain finance program.
The company plans to replace its existing $1 billion revolving credit facility with a $1 billion asset-based lending facility and issue $1.5 billion in senior unsecured notes. Proceeds will repay $300 million in senior notes due March 2026 and provide liquidity for operations while supporting the reduction of its supply chain finance program.
S&P projects sales will decline around 5% in 2025, with negative free operating cash flow expected over the next two years. In the first quarter of 2025, revenue fell 24.2% to $2.6 billion due to store closures and the sale of Worldpac.
The company’s strategic realignment includes withdrawing from select Western U.S. markets, closing approximately 500 company-owned stores, 200 independent locations, and four distribution centers to focus resources in more densely populated regions.
Despite these challenges, S&P expects Advance Auto Parts’ profitability to gradually improve, with adjusted EBITDA margins of around 10% this year and 14% in 2026, compared to 3.7% in 2024. The forecast considers a gradual reduction in restructuring costs and improvements in operating efficiency.
S&P could lower its rating further if the company’s competitive position weakens or if adjusted leverage remains at 5x or higher. Conversely, the outlook could be revised to stable if Advance achieves positive same-store sales growth, sustained improvement in EBITDA margins, and successfully finances working capital internally while reducing its supply chain finance program.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.