Investing.com -- S&P Global Ratings has lowered its credit rating for Minnesota-based power sports vehicle manufacturer, Polaris (NYSE: PII ) Inc., from ’BBB’ to ’BBB-’ due to a predicted underperformance in revenue and EBITDA for 2025 and 2026. The downgrade is attributed to an unfavorable economic environment and high tariffs impacting discretionary spending on leisure items such as powersports, particularly in a weakened retail environment.
Polaris, which has supply chain links to China, is expected to face net leverage above 4x in 2025, and it’s projected to remain above the 3x downgrade threshold through 2026. The uncertain macroeconomic and trade environment, coupled with a potentially extended period of high tariffs on Chinese imports, could further weaken Polaris’ profitability and credit metrics.
The company’s issue-level rating on its senior unsecured notes was also lowered to ’BBB-’. The assessment of liquidity was revised from strong to adequate due to a reduction in covenant headroom, limiting the availability under the company’s large revolving credit facility commitment.
The outlook for Polaris remains negative, reflecting significant uncertainties regarding the impact of tariffs on the company’s costs, profitability, and competitive position over the medium term. The negative outlook also reflects the possibility that S&P Global Ratings-adjusted debt to EBITDA could rise above 4x in 2025.
Polaris, which procures about $500 million in supplies and materials from China, faces higher input costs over the medium term due to U.S. import tariffs. The company plans to cut unnecessary costs and reevaluate its supply chain to decrease its exposure to China, expecting to reduce it by about 30% by the end of 2025, with further reductions in 2026.
The company’s $1.4 billion revolver has two financial covenants, a minimum EBITDA interest coverage ratio of 3.0 to 1.0, and a net leverage ratio not greater than 3.5 to 1.0. S&P Global Ratings believes that Polaris will successfully pursue covenant relief to maintain adequate liquidity over the next 12 months.
Despite the current challenges, Polaris remains a global leader in the power sports recreational market, with a history of successful product launches and consistent investment in product innovation. The company has a global distribution network with more than 4,000 dealers worldwide and a supportive financing network.
The ratings could be further lowered if Polaris’ operating performance significantly weakens and the company fails to improve S&P Global Ratings-adjusted debt to EBITDA below 3.75x. The outlook could be revised to stable if Polaris can reduce leverage below the 3.75x net leverage downgrade threshold, contingent on a recovery in retail demand in the powersports industry, successful mitigation of tariff exposure, and stable macroeconomic conditions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.