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Investing.com -- Moody’s Ratings has downgraded the corporate family rating (CFR) of Superior Industries International (NYSE:SUP), Inc. to Caa3 from B3. The downgrade also includes the probability of default rating, which has been adjusted to Caa3-PD from B3-PD. In addition, the company’s priority senior secured revolving credit facility rating has been reduced to B2 from Ba3, and the senior secured term loan rating has been downgraded to Caa3 from B3. Moody’s has also shifted the outlook for Superior Industries to negative from stable.
The downgrade is due to the expectation that Superior Industries is highly likely to undergo a distressed exchange in the near future. This is largely due to a significant decrease in volumes from key North American customers and subsequent liquidity concerns due to weaker financial results. The company is currently in talks with its lenders and preferred equity shareholder to substantially reduce financial leverage through a debt-for-equity exchange. The management of Superior Industries is aiming for a net leverage of 2.5x or less, which could result in a significant loss to term loan holders.
Governance considerations also played a role in the rating action. The high likelihood of a distressed exchange will likely result in creditor losses, leading to a change in Superior’s governance score to G-5 from G-4 and the Credit Impact Score (CIS) to CIS-5 from CIS-4.
The downgrade also reflects the notification in April that several key customers would source wheels from other suppliers. The company estimates that the loss of these orders will amount to approximately 33% of its projected 2025 revenue. To meet short-term liquidity needs, Superior has secured a commitment from its term loan lenders to provide up to $70 million of additional term loan funds under the existing credit agreement. However, the company does not expect to meet its minimum liquidity and leverage covenants for Q2 2025 and is seeking covenant relief.
Superior’s SGL-4 rating indicates an expectation that free cash flow will be significantly negative in 2025, putting stress on an already modest cash position. In early April, the company tapped its $60 million revolving credit facility for $42.5 million, exhausting all available capacity after considering outstanding letters of credit. Furthermore, in May 2025, the financial institutions that are the counterparties to Superior’s factoring arrangements suspended its use of these programs.
The ratings could be upgraded if Superior Industries manages to right-size its balance sheet through a recapitalization that allows for operating flexibility while replacing the lost volumes. Restoration of liquidity, particularly progress toward generating breakeven free cash flow, would also be crucial for a ratings upgrade. However, if recoveries for lenders are expected to be lower than current estimates, the ratings could be further downgraded.
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