S&P shifts American Tire view to positive

S&P said it changed American Tire Distributors Inc.’s outlook to positive from stable and affirmed its ratings.

“ATD's sales, cash flow, and credit metrics continue to improve, and we believe management's ongoing operating expense reductions will help it lower its debt leverage over the next few years. Despite the effects of the Covid-19 pandemic, the company increased its sales in 2020. Specifically, ATD's net sales for fiscal year 2020 were $4.79 billion, which reflects a 1.7% year-over-year increase relative to fiscal year 2019. The company also expanded its EBITDA margins and generated over $70 million of FOCF while navigating the steep drops in its sales in March and April 2020,” the agency said in a press release.

S&P said it estimates ATD's debt leverage (debt to EBITDA) could approach 7x by the end of 2021. The agency also anticipates the company will generate positive FOCF throughout the forecast period.

“The positive outlook on ATD reflects the at least one-in-three chance we will raise our ratings on the company over the next 12 months if its debt leverage, incorporating S&P Global Ratings' adjustments, continues to decline and it generates positive FOCF,” S&P said.

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