How are energy investors positioned?
Investing.com -- Moody’s Ratings has lowered the ratings for Wabash National (NYSE:WNC) Corporation, including its corporate family rating (CFR) to B1 from Ba3. The downgrade also includes a change in the probability of default rating to B1-PD from Ba3-PD and the senior unsecured notes rating to B2 from B1. The outlook for Wabash has been revised to negative from stable, and the company’s speculative grade liquidity rating has been downgraded to SGL-3 from SGL-2.
The downgrade in ratings and the negative outlook is due to the anticipation of a significant decrease in Wabash’s earnings in 2025. This is due to a continuous down cycle in trailer production and the negative impact of US tariffs on the demand for new trailers and truck equipment. The tariffs have led to Wabash’s customers delaying investments in their transportation fleets, which has resulted in a forecasted significant deterioration of Wabash’s credit metrics in 2025, including a substantial increase in financial leverage.
In the first quarter of 2025, the punitive damages from a September 2024 jury verdict relating to one of Wabash’s products were reduced from $450 million to $108 million. Wabash has appealed this verdict, and the timeline for a final resolution is currently unknown. This situation poses a significant risk to Wabash if the payment is required before operating conditions improve.
Wabash’s ratings reflect its strong position in the volatile truck trailer manufacturing market, particularly for Class 8 commercial vehicles. It is expected that Wabash’s revenue will decline at least 8% in 2025, following a drop of over 20% in 2024. The decrease in production during the first half of 2025 is expected to substantially decrease earnings. The ongoing tariff uncertainty has significantly curtailed end market demand from expectations at the start of 2025. Wabash is expected to adjust its cost base to the lower demand in the near term, but profitability will be reduced. The company’s EBITA margin is expected to deteriorate to about breakeven in 2025, down from over 5% in 2024.
Historically, Wabash has been able to effectively navigate through periods of severe end market declines by maintaining a conservative balance sheet ahead of down cycles. The company entered the current down cycle with debt/EBITDA near 1x at the end of 2023 and leverage remained below 3x in 2024 following significant demand pullback. However, it is expected that debt/EBITDA will increase to around 7x as earnings weaken further in 2025.
End market demand is expected to recover in 2026, as new trailer production levels will remain below replacement needs over the next few quarters. Wabash’s financial leverage could quickly revert to the 3x range next year. Wabash is expected to maintain adequate liquidity as reflected in its SGL-3 speculative grade liquidity rating. As of March 31, 2025, Wabash’s liquidity consisted of $81 million of cash and $229 million of availability under its revolving credit facility, net of letters of credit and borrowing base limitations.
The ratings could be upgraded if trailer demand sustainably improves and Wabash’s EBITA margin returns to at least 7%. A ratings upgrade would also require good liquidity and stronger credit metrics. However, the ratings could be downgraded if demand and production continue to decline and Wabash is unable to limit earnings deterioration. Lastly, the ratings could be downgraded if Wabash is required to pay substantial punitive damages from the September 2024 jury verdict that exceed its available liquidity.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.