Investing.com -- S&P Global Ratings has downgraded the credit rating of Wabash National (NYSE: WNC ) Corp. to ’B+’ from ’BB-’ due to higher leverage and weaker cash flows as a result of declining trailer deliveries. The downgrade comes as freight carriers delay capital expenditure, causing Wabash’s credit measures to worsen below expectations for 2025. The issue-level rating on Wabash’s senior unsecured notes has also been downgraded to ’B’ from ’B+’, with the ’5’ recovery rating remaining unchanged.

The timing and magnitude of a potential recovery remain uncertain, with significant risk to the forecast. However, S&P Global Ratings anticipates that trailer deliveries will improve somewhat in 2026, which could help improve the company’s credit measures.

The stable outlook reflects the expectation that Wabash’s S&P Global Ratings-adjusted debt to EBITDA could improve to 4x and its free operating cash flow (FOCF) to debt could strengthen to the high-single-digit area percent area in 2026 as freight demand improves.

Wabash’s credit metrics are expected to deteriorate beyond previous expectations for 2025, with a recovery in 2026 remaining uncertain. S&P Global Ratings now expects the company’s adjusted debt to EBITDA to be 8.9x and FOCF to debt to be 0.5% in 2025, inclusive of the Missouri litigation liability.

The company is currently appealing the Williams et al. v. Wabash lawsuit, following a judge’s decision to reduce punitive damages to $108 million from the $450 million jury verdict earlier in the year. The timing for resolution and the outcome are uncertain, with expectations that Wabash will fund any adverse decisions with debt.

Trailer and truck body deliveries continue to underperform near-term expectations as freight carriers delay capital expenditure. This has led to a revision in revenue growth expectations to -15% to -10% in 2025, reflecting weaker demand in the transportation solutions segment.

Given the cyclical nature of freight transportation, total North American trailer production is generally expected to be between 250,000-325,000. However, production is expected to be in the low-200,000 area in 2025, the lowest since the COVID-19 pandemic and the 2008 recession.

Wabash’s EBITDA margin and reported FOCF are likely to improve modestly through the remainder of 2025, with more significant improvement expected in 2026. The company began rightsizing its cost structure in the first quarter, reducing headcount in production facilities in line with lower demand.

There is a high degree of uncertainty in the forecast over the next few years due to evolving tariff policies and its impact on the economy. The stable outlook reflects the expectation that Wabash’s credit metrics will improve as trailer and truck body demand recovers.

S&P Global Ratings could lower the rating on Wabash if it believes the company’s adjusted debt to EBITDA will remain above 5x or FOCF to debt will remain below 5% for a sustained period. Conversely, the rating could be raised if Wabash’s adjusted debt to EBITDA improves below 4x and FOCF to debt improves toward 15%.

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