S&P upgrades Victoria PLC to ’CCC+’ after debt refinancing

Investing.com -- S&P Global Ratings has upgraded flooring manufacturer Victoria PLC to ’CCC+’ from ’SD’ following the completion of its debt refinancing, with a stable outlook.

The debt refinancing, implemented on Monday, extends Victoria’s debt maturity profile and temporarily eases its cash interest burden over the next 12-18 months. The company exchanged most of its €489 million senior secured notes due August 2026 and a portion of its €250 million senior secured notes due March 2028 for new €612 million first-priority senior secured notes due July 2029.

Victoria also maintains a £130 million super senior credit facility maturing in 2030, split between a £55 million revolving credit facility and a £75 million term loan facility.

While the new first-priority notes carry a higher fixed interest rate of 9.875%, the company has the option in the first 12 months to use payment in kind (PIK) of 8.875% and 1.000% cash interest. S&P believes Victoria will likely exercise this option to reduce its cash interest burden over the next year, helping support its liquidity position.

Despite these improvements, S&P views Victoria’s capital structure as unsustainable due to high implied interest costs and an average weighted debt maturity of close to three years. The company’s EBITDA remains subdued amid a soft trading environment.

S&P forecasts Victoria’s adjusted debt leverage, including preference shares with noncash interest treated as debt, will remain elevated at above 10x in fiscal 2026, or above 8.0x excluding preference shares. Beyond the next 12-18 months, the increased cash interest burden will start weighing on free cash flow generation.

The rating agency projects Victoria’s profitability will improve as the group executes cost-saving initiatives, despite challenging demand conditions. S&P forecasts stagnant revenue with a marginal decline of about 0.5% in fiscal 2026, followed by growth of about 3.5%-4.0% in fiscal 2027 as housing transactions and consumer spending gradually recover.

Victoria is implementing significant cost-saving measures, including restructuring Balta Rugs, upgrading its ceramics facility in Spain, and integrating distribution and group procurement. These initiatives are expected to deliver cost benefits of about £50 million spread over fiscal 2026 and 2027.

S&P projects Victoria’s adjusted EBITDA to increase to about £115 million-£120 million in fiscal 2026 and about £140 million-£145 million in fiscal 2027, with adjusted margins improving to 10.5%-11.0% and 12.5%-13.0% respectively, up from 8.6% in fiscal 2025.

The company is expected to generate neutral to positive free operating cash flow over the next 12 months. Victoria’s liquidity position, including about £65 million cash on balance sheet and £55 million available under new credit facilities, should adequately support operations and reorganization plans.

S&P could downgrade Victoria if operating performance deteriorates further, resulting in materially negative free cash flow. Conversely, a rating upgrade could occur if the company generates sustained positive free cash flow above S&P’s base case and consistently reduces leverage, supported by improved revenue growth and profitability.

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