S&P changes Cubic view to negative

S&P said it changed its outlook on Cubic Corp. (Atlas CC Holding LLC) to negative from stable and affirmed all its ratings, including the B+ issue-level rating on its term loan C, and the B issue-level ratings on its revolver, letter of credit facility, and first-lien term loan. The recovery rating on the term loan C remains 1 and the recovery rating on the revolver, LOC facility, and first-lien term loan remains 2.

“Supply chain delays, idle capacity, cost inflation and rising interest expense threaten to render Cubic's debt capitalization unsustainable. Cubic has significantly underperformed our earnings and cash flow growth expectations since the 2021 leveraged buyout due to higher-than-expected wage costs, supply chain delays, higher interest rates and delayed realization against targeted cost-savings synergies,” S&P said in a statement.

The agency said it does not envision a rebound for Cubic until fiscal year 2025. “Weak earnings growth with higher interest costs will drive free operating cash flow deficits in 2023 and 2024. Nevertheless, we forecast Cubic will generate reported FOCF about $35 million in 2025, and about $50 million in 2026 and 2027 as interest rates decline and the company generates an incremental $100 million of EBITDA through a decline in restructuring charges and the realization of cost savings targeted at the LBO.”

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