Advance Auto Parts (AAP) Drops 7.8% on Moody's Downgrade
Advance Auto Parts (NYSE: AAP) shares dropped 7.8% today to $61.32 after Moody’s downgraded its corporate family rating to Ba3, citing elevated debt and ongoing pressure on the company’s financial profile.
🛠️ Key Reasons Behind the Drop:
- Moody’s Downgrade (July 24):
- New rating: Ba3 (from Ba2)
- Outlook: Negative
- Drivers:
- High leverage: Debt/EBITDA expected to reach 6.1× in FY25
- Poor interest coverage: EBITA/Interest at –1.4×
- Free cash flow expected to remain negative (~$250M annually)
- New Debt Announcement:
- $1.5 billion in senior unsecured notes issued this week
- Moody’s flagged added debt as a credit risk, potentially weakening recovery for current bondholders
- Company also entered into a new asset-backed credit facility
- Underlying Financial Strain:
- Despite improving revenue trends, operational turnaround is ongoing
- Moody’s warns limited flexibility to manage through future economic or sector downturns
📊 Stock Reaction
| Date | Price | Change |
|---|---|---|
| July 24 | $61.32 | –$5.19 (–7.80%) |
Takeaway:
The market is reacting sharply to Moody’s downgrade and funding decisions. While AAP is attempting a turnaround, its rising leverage and weak coverage metrics have heightened investor caution.