S&P ups K&N, rates loans B, CCC+

S&P said it raised K&N Parent Inc.’s issuer rating to CCC+ from D and assigned a B issue-level and 1 recovery ratings (rounded estimate: 95%) to the new $60 million priority term loan due 2027 and a CCC+ issue-level and 3 recovery ratings (rounded estimate: 50%) to the term loan due 2027. The agency also withdrew the D rating on the second-lien debt due 2024 following the completion of the swap for equity.

“The upgrade reflects the repayment of the near-term bridge obligation, extension of all debt maturities, and additional liquidity support, though we expect the company's operating performance to remain weak, liquidity to be tight, and the capital structure to remain unsustainable,” S&P said in a press release.

Pro forma for the restructuring deal, S&P estimates K&N’s leverage was 13x for the 12 months ended Dec. 31 down from 20x pre-restructuring.

“While leverage is now considerably lower, we still consider this degree of leverage to be unsustainably high, particularly given the current economic backdrop. We believe the economy will enter a shallow recession in 2023, with our economists forecasting domestic GDP to decline 0.1% in 2023, and consumers will pull back on discretionary spending, leading to a delay or trade-down in purchasing,” S&P said.

The outlook is negative.

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