Moody's Ratings adjusted its assessment of Advance Auto Parts, Inc. (NYSE:AAP) by moving the company's outlook to stable from negative and reaffirming several debt and issuer ratings. The corporate family rating and the probability of default rating remain at Ba3 and Ba3-PD respectively, and the ratings agency also affirmed the Ba3 rating on the company's backed senior unsecured notes and senior unsecured notes. Separately, Moody's upgraded Advance Auto Parts' speculative grade liquidity rating to SGL-1 from SGL-2.
The change to a stable outlook reflects Moody's view that the company's restructuring work is largely finished, with only limited restructuring charges anticipated in 2026. Moody's noted expectations that Advance Auto Parts will generate positive free cash flow in the current year and that key credit metrics will continue to improve over the next 12 months.
Liquidity and cash position
Moody's cited very good liquidity as the basis for the SGL-1 rating. The agency highlighted the company's high cash balances, the return to positive free cash flow, and availability under its $1 billion asset based revolving credit facility as supporting factors. At the end of the first quarter of 2026, Advance Auto Parts reported $2.9 billion in cash on its balance sheet.
Financial policy and projected metrics
Advance Auto Parts' stated financial policy, as referenced by Moody's, includes maintaining a significantly reduced dividend, a halt to share repurchases, and keeping elevated cash on the balance sheet. Moody's expects that leverage and coverage metrics will improve, forecasting debt/EBITDA of 4.6x and EBITA/interest of 2.4x in 2027.
Rating rationale and sector context
Moody's said the Ba3 corporate family rating is supported by Advance Auto Parts' sizable position in the expanding U.S. commercial auto parts segment. The agency cited industry fundamentals that favor the business, including rising total vehicle miles driven in the U.S., growth in the total number of registered vehicles, and an increase in vehicle age to roughly 13 years.
Rating sensitivities
Moody's set explicit thresholds for potential rating action. An upgrade could follow if lease-adjusted debt/EBITDA is sustained below 4.5x and if EBITA/interest is sustained above 3.5x. Conversely, a downgrade risk exists if lease-adjusted debt/EBITDA remains above 5.5x or if EBITA/interest stays below 2.5x.
Overall, the ratings action leaves Advance Auto Parts with affirmed Ba3 credit ratings and an improved liquidity assessment, while identifying clear quantitative triggers that would prompt a future move in either direction.