SRAM’s Debt Ratings Affirmed by Moody’s

Moody’s affirmed SRAM’s B1 corporate family rating, probability of default rating, and the B1 rating on its senior secured first lien credit facility. It also gave the Chicago-based bike component manufacturer a stable outlook.

 The first lien credit facility consists of a $100 million first lien revolver due May 2026 and a $1,100 million original principal amount first lien term loan B due May 2028.

Moody’s assessment stated, “Today’s ratings affirmation and stable outlook reflects SRAM’s strong market position within the niche premium bicycle component segment. The company’s good EBITDA margin remains at above 20 percent despite ongoing demand headwinds impacting the bicycles market supported by product quality and innovation. The healthy EBITDA margin supports good free cash flow generation and very good liquidity and helps the company manage the current challenging operating environment.

“The bicycle components industry is experiencing a meaningful slowdown following the very strong consumer demand for bikes and related products during the coronavirus pandemic. The persistent high inflationary environment continues to pressure consumer discretionary spending. Additionally, channel inventory de-stocking is negatively impacting new order volumes. As a result, SRAM’s operating performance declined substantially versus the prior year, with revenue and EBITDA back down to near pre-pandemic levels. However, SRAM’s healthy EBITDA margin supports positive free cash flow generation and the company remains disciplined with its capital allocation, using excess free cash flow towards debt repayment. The reduction in debt helps to somewhat offset the EBITDA decline and SRAM is able to maintain moderate debt/EBITDA leverage at 2.8x as of the fiscal year 2023 ending 31 December 2023. The company’s cash balance also remains healthy, increasing to $285 million as of end of fiscal 2023.

“Moody’s expects that demand headwinds affecting the bicycle components industry will persist at least through 2024 and Moody’s projects SRAM’s debt/EBITDA leverage will increase to above 3.5x over the next 12-18 months. The company’s healthy cash balance and Moody’s expectation for continued positive free cash flow supported by a stable EBITDA margin provides financial flexibility to navigate ongoing industry headwinds and continue to reduce debt.”