Standard & Poors (S&P) affirmed the debt ratings of Under Armour as the firm’s credit metrics have improved as a result of reduced restructuring costs, driving EBITDA margin expansion and higher cash flow generation. The agency did note that the potential ratings impact of the recently revealed accounting investigation by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) is uncertain

Additionally, the company’s inability to turn around flagging sales in its North American segment raises uncertainties about continuation of current operating trends, according to S&P. S&P expects Under Armour’s leverage to remain below 2x in fiscal 2019 and 2020.

S&P Global Ratings’ affirmed the ‘BB’ issuer credit rating on Under Armour. The ‘BB’ issue-level rating on the company’s unsecured notes is also being affirmed, the ‘3’ recovery rating is unchanged.

The stable outlook reflects S&P’s expectation that the company will modestly improve its performance in North America, manage leverage around the 2x area, and the SEC and DOJ investigations have no material negative impact on its credit measures. However, a negative rating action could result if materially negative information surfaces pertaining to the company’s accounting practices or governance standards, damaging its brand name or reputation.

S&P wrote in its summary, “The investigation, ongoing since July 2017, concerns its accounting practices and disclosures. The company stated that its accounting practices and related disclosures were appropriate, but the investigation raises the possibility that the company could be subject to financial penalties or required to materially restate its financial results. As such, future rating actions would be contingent on the outcome of the investigation and the magnitude of possible negative impacts to the company.

“The stable outlook reflects our expectation that the company will gradually stem declines in its North American segment and continue expanding in international markets, while maintaining current margins. This should keep leverage below 2x. In addition, the stable outlook incorporates our expectation that the ongoing SEC and DOJ investigation will not have material negative impact on the company’s credit measures.

“We could raise the ratings if we believe the company can sequentially improve sales trends, including stabilization in its North American segment, such that it can maintain leverage below 3x. A positive rating action would also be contingent on the outcome of the ongoing SEC and DOJ investigation in which there is no negative impact to cash flows from possible penalties or significant restatement of operating results.

“We could lower the rating if materially negative information about the company’s accounting practices or governance standards which damages its brand name or reputation. We could also lower the rating if the company cannot improve negative sales trends in North America, combined with slower growth in its international segments and weaker margins, such that leverage increases above 4x.”