S&P revises Fender Musical Instruments outlook to stable

S&P revises Fender Musical Instruments outlook to stable

S&P Global Downgrades Fender’s Credit Rating to ‘B-’ Amid Tariff Risks and Profitability Concerns

S&P Global Ratings has downgraded Fender Musical Instruments Corp.’s long-term credit rating to ‘B-’ from ‘B’, citing anticipated weakening in profitability and cash flows over the next 12 months. The downgrade reflects heightened risks from foreign exchange headwinds, labor inflation, and tariffs on imports from China and Mexico, which collectively threaten the company’s financial stability according to S&P Global Ratings.

The rating agency forecasts Fender’s leverage ratio to reach 8x and EBITDA interest coverage to fall to 1.8x in 2025, below investment-grade thresholds. Free operating cash flow is projected to turn negative, with an estimated outflow of $11 million. These metrics underscore the company’s vulnerability to external pressures, including a 10% tariff on Chinese imports implemented in February 2025 and a 25% tariff on Mexican imports introduced in March 2025. Fender sources 20%-25% of its finished goods from China and 10% from Mexico, amplifying its exposure to these trade policies as reported.

Despite revenue growth in three of four quarters in 2024, Fender’s EBITDA margin contracted by 100 basis points due to foreign exchange and labor costs. Liquidity is also under pressure, with asset-based lending (ABL) facility borrowings and cash balances expected to decline to $45 million and $20 million, respectively, by year-end 2025 according to the rating agency.

S&P has assigned a negative outlook to Fender’s credit profile, contingent on its ability to offset tariff-related costs through pricing strategies or improved demand. A further downgrade could occur if EBITDA interest coverage dips below 1.5x or macroeconomic conditions worsen. Conversely, the outlook could stabilize if tariff risks abate or foreign exchange pressures ease as detailed in the analysis.

Investors are advised to monitor Fender’s capital structure and liquidity management amid ongoing uncertainties in global trade and consumer spending trends.

Investing.com, April 2025: Investing.com, April 2025