S&P: J. B. Poindexter & Co. Inc. Upgraded To 'BB-' From 'B+', Outlook Stable; Notes Upgraded

S&P Global Ratings today raised its corporate credit rating on Texas-based J. B. Poindexter & Co. Inc. to 'BB-' from 'B+'. The outlook is stable.

At the same time, we raised our issue-level rating on the company's $225 million senior unsecured notes to 'BB-' from 'B+'. Our '3' recovery rating on these notes remains unchanged, reflecting our expectation of meaningful (50%-70%; rounded estimate: 65%) recovery in the event of a payment default.

The upgrade reflects the continued improvement in Poindexter's earnings, which--in combination with its strong cash flow generation--contributed to stronger credit ratios than we had previously expected, including an S&P Global adjusted FFO-to-debt metric of 26% as of Sept. 30, 2017 (up sharply from our previous expectation of 18%-20%).

S&P Global Ratings' stable rating outlook on J. B. Poindexter & Co. Inc. reflects our expectation that the company will maintain an adjusted FFO-to-debt ratio of 20%-30% over the next 12 months. This is supported by successful integrations of recent acquisitions and by stable conditions in its transportation businesses, which will be partially offset by soft conditions in Poindexter's energy-related and funeral coaches businesses and its use of some excess cash flow to fund external growth.

We could lower our ratings on Poindexter if the company's operating performance fell short of our expectations, either because of a cyclical downturn or operational inefficiencies. We could downgrade the company if, for instance, we forecast that its EBITDA would weaken significantly because of its inability to maintain the improved margins in its truck body and step van segments amid lower demand conditions, causing its adjusted FFO-to-debt ratio to fall below 20% for a sustained period with no clear prospects for recovery.

Although unlikely during the next 12 months, we could upgrade Poindexter if it were able to establish a track record of strong and consistent margin performance across its key segments, successfully implement its external growth strategies, and commitment to financial policies that would cause its adjusted FFO-to-debt ratio to remain above 30% for a sustained period, all of which would be consistent with higher-rated credits. We would also need to believe that future financial policies will continue to support this level.
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