Standard & Poors upgraded the debt ratings of Chicago-based bicycle parts manufacturer SRAM LLC due to better operating performance and a commitment to reducing debt.

The rating agency noted that SRAM announced it is seeking a $150 million term loan add-on to fund a $150 million distribution to shareholders. However, due to better operating performance, this distribution will raise leverage to less than 3x at the close of the transaction.

“We believe that the transaction illustrates the company’s revised financial policy of maintaining leverage less than 3x,” S&P said. “As a result, we raised our issuer credit rating to ‘BB-‘ from ‘B+’.”

“We also raised our issue-level rating on SRAM’s senior secured credit facility to ‘BB-‘ from ‘B+’. The recovery rating remains ‘3’.
The stable outlook reflects our expectation for order volumes and EBITDA to continue to improve this year, and for good EBITDA coverage of interest expense, around 7x, through 2020. Furthermore, we believe that the company will continue to dedicate most of its available free cash flow to paying down debt, resulting in leverage below 3x.”