Aftermarket truck parts distributor FleetPride’s debt rating has been downgraded by Moody’s, and the accompanying commentary by the agency is both pessimistic and critical of the company’s finances.
The downward move Thursday in what Moody’s (NYSE: MCO) calls its corporate family rating (CFR) took the company’s rating to Caa1 from B3. That B3 rating had been in place since January 2019, when Moody’s first rated FleetPride’s debt.The basis for the downgrade was not all financial. Moody’s also took a swipe at FleetPride’s governance.
In addition to reducing the debt rating, Moody’s kept a negative outlook on the company. That outlook was put in place in August 2024.
A downgrade in a company’s rating often occurs after a previous move to a negative outlook. But the downgrade also more often than not is accompanied by a concurrent lifting of the negative outlook to stable. That did not occur with Moody’s action on FleetPride.
S&P Global Ratings (NYSE: SPGI) has a B- rating on FleetPride. On a comparative basis, that is considered one notch higher than the new Caa1 rating Moody’s has on the parts provider. The S&P outlook on FleetPride is stable, creating a significant difference between the two agencies: S&P’s rating is a notch above Moody’s and the outlook is stable, contrasting with Moody’s lower rating and negative outlook.
Both ratings are deep into speculative territory. In the case of Moody’s, Caa1 is seven notches less than the cutoff between speculative and investment-grade debt. For S&P, it’s six notches.
The Moody’s downgrade also reduced the rating on a senior secured second-lien term loan to Caa3 from Caa2, further down the scale from the CFR.
“The ratings downgrades reflect our expectations that despite efforts to improve operating results, the company will continue to operate with very high leverage, low interest coverage and weak liquidity attributed to ongoing negative free cash flow,” Moody’s said in its report. “Further, the company faces looming debt maturities that if not addressed timely will result in an untenable capital structure.”
The governance issue raised by Moody’s targets “aggressive financial strategies and risk management practices” that have “resulted in high financial leverage and weak liquidity.” That reduced a metric used by Moody’s – the credit impact score – being reduced to CIS-5 from CIS-4.
The reduction reflects “these risks and a track record that has failed to adequately address the declining operating results that cannot support the existing capital structure.”
FleetPride is owned by private equity company American Securities. A request for comment by FleetPride had not been responded to by publication time.
The reports of the ratings agencies on their actions do not generally disclose a large amount of financial data. Moody’s did disclose that revenue at FleetPride was $1.8 billion in the 12 months ended March 31.
But the most important number in the reports is the ratio of debt to earnings before income, taxes, depreciation and amortization.
Moody’s described FleetPride’s debt-to-EBITDA ratio as reflecting “very high financial leverage and weak liquidity.” The ratings agency said it expects that ratio to decline from the 9.6X level it stood at following the close of the first quarter but that the decrease would be “modest.” The ratio is “unsustainably high,” the Moody’s report said.
FleetPride has “ongoing” negative free cash flow and “continued reliance” on its asset-backed revolving line of credit “as the company works to improve operating results.”
FleetPride is also facing a need to refinance the $225 million second-lien term loan before Nov. 5, 2026. That is the debt issue that received a downgrade to two notches less than the CFR rating.
If the company cannot refinance that loan, according to Moody’s, it will trigger maturity of a first-term loan and the asset-backed revolving credit line.
The weak truck market did not go unremarked in the Moody’s commentary. “FleetPride is exposed to cyclical end markets and results are largely tied to trucking and freight activity in the US,” it said. “The level of freight volume is a strong indicator of overall fleet usage and thus the need for fleet operators to purchase replacement parts. The extended downturn results in a reduced need for replacement parts and operators pulling back on maintenance spending.”
But the Moody’s report said FleetPride is performing somewhat better than the trucking market as a whole. “The company continues to modestly outperform broader industry trends with growth driven by increasing smaller accounts, e-commerce and private label offerings,” it said.
Moody’s, in a description of the FleetPride business, said it “distributes brand name heavy-duty vehicle parts and select private label brands through five distribution centers and over 300 branches nationwide.” It also supplies a “limited range of remanufactured products” and some repair services.
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