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Investing.com -- The credit rating agency, S&P Global Ratings, has confirmed the 'BB' issuer credit rating of Enpro Inc., a leading industrial technology company. The decision came following Enpro's complete repayment of its $291 million first-lien term loan, and the expansion of its revolving credit facility (RCF) to $800 million.
In addition to the affirmation of the issuer credit rating, S&P Global Ratings lowered the issue-level rating on Enpro's existing $350 million senior unsecured notes to 'BB-' from 'BB'. The recovery rating was also revised to '5' from '4', indicating an expected recovery of 10%-30% (rounded estimate: 25%) in the event of a default.
The changes to the ratings were influenced by the upsizing of Enpro's RCF, which now takes precedence over the unsecured notes in the payment waterfall in a default scenario. It is assumed that 85% of the RCF would be drawn at default.
Enpro's capital structure now includes $350 million of senior unsecured notes, due 2026, and the upsized $800 million RCF, which matures in April 2030. The increased RCF is expected to fund modest-size bolt-on acquisitions, reflecting the company's focus on developing its capabilities in leading-edge industry technology.
Despite the changes, Enpro maintains a stable outlook, with S&P Global Ratings expecting the company to maintain adjusted debt leverage of less than 4x throughout the economic cycle. This projection includes considerations for shareholder returns and acquisitions.
Enpro's leverage threshold is forecasted in the high-1x to low-2x area for the full-year 2025, despite continued challenges in the smaller advance surface technologies (AST) segment. The company's supportive credit metrics, including free operating cash flow to debt (FOCF/debt) above 20% and EBITDA margins in the low-to-mid-20 percentage area, provide a rating cushion for the current 'BB' issuer credit rating.
The outlook could potentially be lowered if debt-funded acquisitions and share repurchases, or operational underperformance, caused the company's adjusted debt to EBITDA to approach 4x with no clear prospects for recovery. Conversely, the rating could be raised if Enpro expanded into less-cyclical businesses, lowering the risk of a potential deterioration in its cash flow and debt leverage during recessionary periods.
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