S&P downgrades Cobham

S&P said it lowered its ratings for AI Convoy (Luxembourg) Sarl (Cobham) and its secured debt to B- from B. The 3 recovery rating (rounded recovery prospects: 60%) is unchanged.

Cobham recently completed asset sales and used the proceeds to reduce its gross debt. However, tighter margins offset the debt reduction, S&P said.

“Cobham's leverage increased significantly in 2022, above 10x excluding shareholder loans. Although reported EBITDA was $336 million in 2022, up by about 4% versus 2021, adjusted EBITDA was affected by total one-off costs of $109 million. This was made up of fees for value-creation plans focusing on production footprint and operating efficiency, as well as exceptional operating costs on freight charges and adverse purchase price variances for electronic components,” the agency said in a statement.

S&P said it forecasts margins widening to about 20%, compared with about 13%-15% in 2022, on lower exceptional costs and the solid margins of the group's remaining businesses. “However, given the lower absolute EBITDA following the disposals, debt to EBITDA (excluding shareholder loans) will be about 9x-9.5x in 2023–a higher than our previous expectation of under 8x––and about 8x-9x in 2024.”

The outlook is stable.

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