OREANDA-NEWS. S&P Global Ratings said today it affirmed its 'B' corporate credit rating on Horizon Global Corp. The rating outlook is stable.

At the same time, we affirmed our 'B' issue-level rating on the company's first-lien term loan. The '3' recovery rating is unchanged, indicating our expectation for meaningful (50%-70%; upper half of the range) recovery of principal in the event of payment default.

"The stable outlook reflects our expectation that Horizon will lower its debt to EBITDA below 5x within one year of the acquisition and generate positive free operating cash flow after the initial year of the acquisition," said S&P Global Ratings credit analyst David Binns.

We would lower the rating if the company's debt to EBITDA stays above 5x on a sustained basis, or if its free operating cash flow generation is likely to turn negative in 2017. This could be because of integration issues with Westfalia, a weaker-than-expected U. S. or European economy that stifles demand, or managerial action to continue pursuing debt-financed acquisitions before improving leverage metrics. This could also occur if Horizon's EBITDA margins stay below 9% on a sustained basis as a result of greater-than-anticipated competitive pressure from lower-priced, private label brands in the highly profitable retail channel.

Although unlikely, we could raise the rating during the next 12 months if Horizon is able to generate incremental cash and lower its debt faster than planned and we believe its debt to EBITDA will remain below 5x over a normal economic cycle. This could occur if its end markets grow faster than currently forecast, possibly by expanding its distribution channels and marketing Westfalia products in the U. S. Another factor that could lead us to consider an upgrade would be if Horizon were to achieve its synergies with Westfalia faster than anticipated and at a greater rate, leading to EBITDA margins to well over 11% on a sustained basis.