S&P Downgrades Karman Debt Rating After $225M Acquisition

S&P Lowers Karman's Debt Rating to 'B+'

S&P Global Ratings has downgraded Karman Space and Defense’s senior secured debt rating to ’B+’ from ’BB-’. The decision follows the company's plan to acquire Seemann Composites LLC and Material Sciences for approximately $225 million, a move financed by increasing its existing term loan.

Acquisition and Funding Details

To fund the transaction, Karman proposed upsizing its existing $506 million term loan B by up to $220 million. S&P noted this will delay credit metric improvement in the near term. The acquisitions are set to enhance Karman’s capabilities in resin and compounds for maritime systems and broaden its presence in niche defense markets, leveraging the acquired companies' long-standing relationship with the U.S. Navy. The recovery rating was also revised to ’3’ from ’2’, indicating a meaningful return for lenders in case of default.

Economic and Market Impact

Despite the increased debt from its largest acquisition to date, S&P maintains a stable outlook for Karman. The agency projects Karman’s debt to EBITDA ratio will be between 3.75x and 4.25x in 2026 and 2027. This outlook is supported by robust defense demand, driven by ongoing global conflicts, which is expected to fuel EBITDA growth and partially offset the higher leverage. While transaction and integration costs may temporarily impact margins in 2026, the acquired companies' sole-source market position is expected to align with Karman's base profit margins.

Summary and Outlook

S&P's stable outlook reflects confidence that strong demand in the defense sector will support Karman's growth, balancing the financial risks of the acquisition. The market will be watching Karman's ability to integrate the new entities efficiently and manage its increased debt load while capitalizing on expanded market opportunities.

FAQ

Q: Why did S&P downgrade Karman's debt rating?
A: The downgrade was due to the increased debt from its $225 million acquisition of Seemann Composites and Material Sciences, which will delay near-term improvement in its credit metrics.

Q: What is the new debt rating for Karman?
A: S&P lowered Karman’s senior secured debt rating to ’B+’ from ’BB-’.

Q: What is S&P's outlook on Karman post-acquisition?
A: S&P has maintained a stable outlook, citing robust defense demand that is expected to support EBITDA growth and help offset the higher debt.

Source: Investing.com