S&P Upgrades AZZ to 'BB' on Rapid Deleveraging and Improved Financial Profile

S&P Global Ratings has upgraded AZZ Incorporated's (NYSE:AZZ) issuer credit rating to ‘BB’ from ‘BB-’, reflecting the company's successful and rapid debt repayment. The rating agency also raised its issue-level rating on AZZ's senior secured debt to ‘BB+’ from ‘BB’, while maintaining a ‘2’ recovery rating.

Accelerated Debt Reduction

The upgrade follows a significant balance sheet transformation since AZZ's debt-funded acquisition of Precoat Metals in fiscal 2023. According to S&P, the company has slashed its adjusted debt load from approximately $1.3 billion to $550 million.

Key financial improvements noted by the rating agency include:

• S&P-adjusted leverage fell to 1.4x in the first quarter of fiscal 2027, well below the agency's 2x threshold for an upgrade.
• The company reduced its debt by $300 million in fiscal 2026 alone.
• Management has committed to a net leverage target of 1x to 2x, signaling a more conservative financial strategy.

Shift in Capital Allocation

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With its leverage now under control, AZZ is shifting its capital allocation strategy. S&P expects the company to generate more than $200 million in free operating cash flow this year, supported by lower interest expenses and expanding margins.

After several years of prioritizing debt reduction, AZZ is resuming growth-oriented spending. The company has already spent approximately $30 million on bolt-on acquisitions year-to-date and is increasing its annual capital expenditures to between $80 million and $100 million to modernize its facilities.

Stable Outlook and Market Tailwinds

S&P assigned a stable outlook to the new rating, expecting AZZ to maintain leverage below 2x while pursuing its growth plans. The agency projects overall revenue growth of roughly 6% for the current year, driven by strong demand from data center construction and public infrastructure projects.

These growth drivers are helping to offset cyclical softness in commercial and residential end markets. The company's Metal Coatings segment saw a 12% expansion in the first quarter. S&P noted that future rating actions will depend on AZZ's capital discipline, with potential risks tied to aggressive debt-funded spending or a deterioration in demand.