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Investing.com -- Moody’s Ratings has affirmed Holley Inc.’s corporate family rating at B2 while changing the outlook from stable to negative, citing high leverage and declining revenue.
The rating agency maintained Holley’s probability of default rating at B2-PD and senior secured ratings at B2. The speculative grade liquidity rating remains unchanged at SGL-2.
The negative outlook reflects several challenges facing the automotive aftermarket parts company, including high leverage, revenue declines, and margin compression. Moody’s also expressed concern about potential trade policy impacts on Holley’s operations.
Moody’s forecasts a mid-single-digit revenue decline for Holley in 2025 despite pricing actions, attributing this to weak consumer demand for the company’s discretionary high-performance aftermarket products. The agency expects revenue to return to low single-digit positive growth in 2026 as demand improves.
Leverage is projected to reach approximately 6.0x by the end of 2025 before declining below that threshold in 2026, driven by modest EBITDA growth and mandatory debt amortization payments.
The B2 rating reflects Holley’s moderate scale, significant demand risk due to its discretionary product nature, and high financial leverage. Supporting factors include the company’s competitive position in the performance automotive aftermarket niche, strong operating margin, and good liquidity.
Moody’s expects Holley to maintain an EBIT margin around 12% in both 2025 and 2026, though this remains below the nearly 15% margin achieved in 2023. The company has focused on higher volume products through SKU rationalization programs in 2023 and 2024.
The SGL-2 liquidity rating indicates good liquidity over the next 12-18 months, with Moody’s expecting Holley to maintain adequate cash balances while generating positive free cash flow of at least $25 million annually in 2025 and 2026. A $100 million revolving credit facility expiring in 2029 provides additional liquidity support.
Potential rating upgrades could occur if Holley demonstrates consistent strong revenue growth while maintaining healthy profit margins, adopts a supportive financial policy, and sustains debt-to-EBITDA below 4x.
Conversely, ratings could face downgrade if operating results deteriorate, including greater than expected organic revenue declines or material EBITA margin compression. Sustained debt-to-EBITDA above 5.5x or EBITDA less capital expenditures to interest below 1.0x could also trigger a downgrade.
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