S&P revises American Axle outlook to negative after acquisition

Investing.com -- S&P Global Ratings has revised its outlook on American Axle & Manufacturing Holdings Inc. to negative from stable, citing integration risks and near-term cash flow concerns following a major acquisition.

The rating agency expects the company’s adjusted leverage to increase to approximately 4.5x for fiscal 2025 after adding about $2.3 billion in gross debt to complete the transaction. While the combined entity anticipates achieving $300 million in annual cost synergies by the end of the third year, these savings will cost $300 million to implement.

S&P forecasts a 1.6% sales decline in 2026 due to production softness across North America and Europe, with further marginal declines expected in 2027. Heavy restructuring costs and lower volumes are projected to push EBITDA margins down to 10.4% in 2026 before recovering to 11.9% in 2027 as restructuring costs decrease and synergies materialize.

The acquisition will significantly increase American Axle’s scale, with pro forma sales reaching approximately $11.2 billion for the last 12 months ended June 30, 2025, up from $6.1 billion in 2024. The deal also reduces the company’s exposure to General Motors, dropping from 42% to 27%, while increasing business with Volkswagen, Toyota, and Renault-Nissan.

Despite these positive aspects, S&P notes potential risks in the European passenger vehicle market and Chinese operations. The rating agency could downgrade American Axle if free operating cash flow to debt doesn’t approach 5% by 2027 or if leverage exceeds 5x due to integration problems or operational challenges.

S&P could revise the outlook back to stable if the company successfully executes the integration, realizes expected synergies, and maintains leverage well below 5x.

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