How will the $150 million senior note offering affect AAR’s credit rating and cost of capital?

The $150 million 6.75 % senior‑note issuance is a modest‑size, fixed‑rate bond that will push AAR’s total debt a little higher but is unlikely to trigger a rating downgrade as long as the proceeds are used for “growth‑oriented” projects (e.g., expanding its MRO capacity) rather than for cash‑burn‑out or dividend‑paying. Rating agencies typically look at leverage ratios, cash‑flow coverage and the purpose of the proceeds; AAR’s current leverage sits in the mid‑40 % range and its operating cash flow comfortably covers existing debt service. Adding a 6.75 % note that matures in 2029 will raise the average maturity profile and, if the cash is deployed to generate higher‑margin revenue, the agency may keep the rating unchanged or even reaffirm it. A downgrade would be more likely only if the market perceives the capital raise as a stop‑gap measure to service working‑capital needs, which the press release does not suggest.

From a cost‑of‑capital perspective, the 6.75 % coupon becomes the new benchmark for AAR’s senior unsecured debt. Assuming the company’s existing debt carries yields in the 5.5‑6 % band, the new issue will lift the weighted‑average cost of debt (WACC) by a few basis points. Because the notes are senior and unsecured, the market will price them at a modest spread over Treasuries, reinforcing a relatively low‑cost financing tier for the next six years. Traders should monitor the bond‑issuance pricing in the coming weeks—if the notes trade tighter than 6.75 % (i.e., at a lower yield), it could signal strong demand and a floor for AAR’s credit spread, supporting the equity price. Conversely, a widening spread would hint at rating‑concern pressure and could cap upside on the stock. In practice, a stable rating and a slightly higher but still affordable cost of capital suggest a neutral‑to‑slightly‑bullish stance on AAR’s equity, with the key watch‑list items being rating agency commentary and the actual pricing of the notes once the offering is live.