S&P cuts USF Holdings

S&P said it lowered its ratings for USF Holdings LLC and its senior secured term loan to CCC+ from B. The 3 recovery rating indicates an expectation for meaningful recovery (50%-70%; rounded estimate: 60%) in default.

“The downgrade reflects USF's weakening liquidity, due to its lower margins and negative free cash flow, and the possibility that its liquidity may tighten further. The company's operations and top-line revenue have been adversely affected by the slowdown in North American automotive production because of ongoing semiconductor chip shortages, as well as its lower operating margins. At the same time, USF's gross profitability and EBITDA margins have declined because of inflationary pressures from rising resin costs and higher factory wages,” the agency said in a press release.

S&P warned USF is at a greater risk of breaching its total debt to EBITDA financial covenants given its tightening covenant headroom, which the agency forecasts will be less than 10%.

The outlook is developing.

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