S&P Global Ratings raised Amentum Holdings Inc.'s corporate credit rating to 'BB' from 'BB-' on Friday, maintaining a stable outlook. The agency attributed the action to the company's ongoing deleveraging, driven by strong project execution and material voluntary debt repayments, alongside operating resilience and visibility from a large contract backlog.
Deleveraging and specific repayments
S&P noted Amentum voluntarily repaid $750 million of term loan debt during fiscal 2025 for the period ended Oct. 3, 2025. Those repayments included $200 million in the company’s second quarter and $550 million in its fourth quarter, representing an acceleration of deleveraging that aligned with S&P’s upside threshold for the rating action.
The ratings agency used that reduction in leverage, combined with continued project execution, as a core justification for moving the rating higher.
Backlog and demand visibility
Amentum’s backlog was reported at more than $47 billion at the end of the first quarter, up from $45 billion a year earlier, with approximately $23 billion of pending awards. S&P characterized this backlog and pipeline as providing demand visibility over the coming years and as supporting the expectation that the firm can continue to reduce leverage through 2026.
First-quarter results affected by shutdown and portfolio changes
The company’s first quarter, which ended Jan. 2, 2026, overlapped with a 43-day U.S. government shutdown. S&P said that, together with the divestiture of the rapid solutions business and a joint-venture deconsolidation, the shutdown contributed to a 5% year-over-year decline in revenue to $3.2 billion. Reported EBITDA for the quarter was $263 million, and reported free operating cash flow was negative $142 million, with S&P attributing these results in part to the shutdown’s effect.
Near-term expectations and seasonality
Despite the weak start to the fiscal year, S&P expects performance to improve and anticipates continued deleveraging in fiscal 2026. The agency expects sequential improvement through the remainder of the year driven by the typical seasonality of government services activity, forecasting that revenue, EBITDA, and free operating cash flow will be more heavily weighted in the second half of the fiscal year.
Leverage metrics and forecasts
Using S&P’s last-12-month calculation, Amentum’s adjusted debt to EBITDA was 3.7x at the end of the first quarter. The ratings agency projects leverage of 3.2x at fiscal year-end 2026. S&P also noted that if Amentum applies a portion of its free operating cash flow to repay debt, as the company outlined in its capital allocation strategy on its recent earnings call, leverage could come in better than S&P’s baseline forecast.
Defense budget and market positioning
Congress recently approved an $890 billion defense budget for government fiscal year 2026. S&P commented that U.S. defense spending could exceed $1 trillion in GFY 2026 after reconciliation. The agency said Amentum is well positioned to benefit from operations and maintenance budgets, particularly for aircraft platforms, base support and environmental remediation, and in space-related areas including communications and missile defense systems.
Growth drivers outside core government services
S&P expects Amentum’s growth over the next several years to include commercial and government demand across space, digital infrastructure and nuclear energy, which would complement the company’s core government offerings of aircraft maintenance, environmental remediation and military base logistics.
As part of expanding its nuclear energy capabilities, the company completed the Jacobs CMS acquisition, which S&P said supports construction of nuclear reactors in the U.K. and positions Amentum to bid on U.S. nuclear reactor projects.
Revenue, margins and cash flow outlook
S&P’s forecast calls for a full-year revenue decline of 1%-2% in fiscal 2026 to about $14.2 billion, reflecting continued execution on recently awarded contracts offset by the effects of the divestiture and joint-venture deconsolidation. For fiscal 2027, the ratings agency projects revenue growth of 5%-7% to about $15 billion as Amentum executes projects in its backlog.
On profitability and cash generation, S&P expects adjusted EBITDA margin to expand to the low-8% area and forecasts reported free operating cash flow of roughly $550 million in fiscal 2026 and $700 million to $750 million in fiscal 2027.
Under these assumptions, S&P expects adjusted leverage of 3.2x in fiscal 2026 and 3.1x in fiscal 2027, levels that the agency regards as consistent with the 'BB' rating.
Capital allocation and potential shareholder distributions
S&P noted uncertainty around Amentum’s future capital allocation, particularly with respect to potential shareholder distributions over the next few years. In light of an executive order dated Jan. 7, 2026, S&P observed that U.S. defense contractors could face limitations on share repurchases and dividends.
Nevertheless, S&P’s forecast includes $1 billion of combined share repurchases and dividends beginning in fiscal 2027. Excluding those distributions, the ratings agency calculated pro forma leverage of 2.5x in fiscal 2027. S&P also estimated that the company’s long-term leverage target of 3x corresponds to about 3.25x on an adjusted basis and stated that a more conservative financial policy would likely be required for consideration of a higher rating.
Rating risks and upside considerations
The stable outlook reflects S&P’s expectation that Amentum will maintain credit metrics consistent with the rating while expanding into commercial end markets and continuing to benefit from strong defense spending.
S&P said it could lower the rating if adjusted debt to EBITDA were to worsen above 4x. Such a deterioration could result from the company failing to win new business in line with S&P’s forecasts to offset contract losses, contract delays or award protests that delay EBITDA generation, or more aggressive shareholder distributions or debt-funded acquisitions.
Conversely, S&P noted it could raise the rating if adjusted debt to EBITDA improved to and remained below 3x. That improvement could stem from an enhanced business mix and on-contract performance, a move into higher-margin activities either organically or through acquisitions that lift EBITDA margins, or adoption of a more conservative financial policy, including a lower net leverage target.