S&P revises Heico view to negative

S&P said it revised the outlook for the Heico Cos. LLC to negative from stable citing weaker performance that led to higher leverage. The agency affirmed Heico’s BBB- rating.

“The negative outlook reflects our view that Heico’s leverage could remain elevated compared with historical levels. In recent years, Heico has faced a generally stable to favorable demand environment and maintained leverage of 1.5x-2x. However, Section 232 tariffs on steel imported from Canada, which were in effect from May 2018 to May 2019, significantly reduced demand within Heico’s metals processing group in 2019. This crushed volumes and hurt Heico’s profitability because the operating leverage of the metals processing business is quite high,” said S&P in a press release.

Heico did win back a lot of its lost business, but S&P believes the risk of trade frictions remains elevated.

The negative outlook on Heico reflects the risk that Heico’s S&P Global Ratings’ adjusted debt to EBITDA could stay above 2x for the next 24 months, a level S&P believes does not provide the company with a sufficient cushion to withstand a cyclical economic downturn and maintain the current rating.

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