OREANDA-NEWS. S&P Global Ratings said today that it has assigned its 'B' corporate credit rating to Ann Arbor, Mich.-based auto supplier Truck Hero Inc. The outlook is stable.

At the same time, we assigned our 'B' issue-level ratings and '3' recovery ratings to the company's proposed $525 million term loan due 2023 and $50 million revolver due 2021. The '3' recovery ratings indicate our expectation that debtholders would realize meaningful (50%-70%; lower half of the range) recovery in the event of a payment default. The borrower under the term loan and revolver is Tectum Holdings Inc., which is a wholly owned subsidiary of Truck Hero Inc.

"The ratings on THI reflect our belief that the company--a leading provider of truck bed covers for pickup trucks--is a relatively niche participant in the broader auto supplier market," said S&P Global credit analyst David Binns. "Moreover, because the company sells products that we view as discretionary, it must successfully adapt to changes in consumer preferences to stay competitive." THI also faces some integration risk given the aggressive pace of its acquisitions.

The stable outlook on THI reflects our expectation that the current penetration of the company's products in the North American pickup truck market will support a FOCF–to-debt ratio of at least 5%.

We could lower our ratings on THI if the company's covenant headroom falls below 15% on a sustained basis or if its FOCF-to-debt ratio falls below 5% on a sustained basis, thereby pressuring its liquidity and weakening its ability to make the investments it needs to stay competitive. This could be caused by weaker-than-expected consumer demand for its products due to a weaker economic environment or a sharp increase in gas prices, which could limit the growth of discretionary purchases. This could also be caused by increasing pressure on the company's margins from higher-than-expected acquisition-integration costs or rising commodity prices.

We could raise our ratings on THI during the next 12 months if we came to believe that the company was successfully executing its business plan and effectively integrating its acquisitions, improving the company's scale and scope and helping it sustain above-average EBITDA margins even during a modest downturn. We could also consider raising our ratings if the company displayed a sustainable track record of debt reduction.