Investing.com -- S&P Global Ratings has upgraded the issue-level ratings on RBC Bearings Inc (NYSE: RBC ).’s senior secured first-lien credit facility to ’BBB-’ from ’BB+’ on March 14, 2025. The upgrade follows RBC Bearings’ voluntary debt repayments of $100 million during its most recent quarter ended Dec. 28, 2024, which increased recovery prospects for its credit facility lenders.

The senior secured first-lien credit facility comprises a $500 million revolver and a $1.3 billion term loan A, set to mature in 2026. The recovery rating on the facility is ’1’, indicating a very high recovery expectation (90%-100%; rounded estimate: 90%) for lenders in case of a default.

In contrast, the ’B+’ issue-level rating on the company’s $500 million senior unsecured notes was affirmed. The recovery rating remains ’6’, suggesting negligible (0%-10%; rounded estimate: 5%) recovery for lenders in the event of a default. The issuer credit rating on RBC remains ’BB’.

The positive outlook reflects a one-in-three chance that S&P could raise its ratings on RBC Bearings within the next year or so. This prediction is based on the forecast for EBITDA growth and solid free cash flow generation, with the company maintaining S&P Global Ratings-adjusted leverage below 3x, on average, inclusive of acquisitions and shareholder returns.

S&P Global Ratings forecasts RBC will maintain a good cushion with respect to the 3x leverage threshold. The leverage forecast assumes EBITDA growth supported by higher shipments from healthy demand across most of RBC’s end markets, inorganic growth from bolt-on acquisitions assumed in the base case, and stable prices. It also incorporates voluntary term loan repayments made through the first three quarters of fiscal 2025.

RBC’s initial $1.3 billion term loan, following the company’s acquisition of Dodge in late 2021, had an outstanding balance of $500 million at Dec. 28, 2024. The company has significantly reduced its debt since the acquisition.

S&P expects good demand for RBC’s highly engineered bearings and precision components, notably from commercial aerospace and defense customers, will lead to organic revenue growth of about 4-6% through 2026. However, persistent supply chain/production challenges weigh on aerospace customers, including Boeing (NYSE: BA ), and unpredictability around policy implementation by the U.S. administration introduce risks to the base-case forecast.

Changes in the ratings could occur if RBC continues its track record of building cushion in credit metrics, the company establishes a public financial policy that is generally aligned with maintaining S&P Global Ratings-adjusted leverage below 3x, or if the company’s business strengthens, possibly resulting from acquisitions that increase the company’s revenue and cash flow base, and product scope, without meaningfully impairing the company’s already good margins.

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