Debt used to finance an acquisition can raise a company’s leverage and interest bill, strain liquidity, and increase refinancing needs. Those changes may weaken its credit rating and affect access to financing or the terms lenders and bond investors offer. But neither a downgrade nor a fixed increase in borrowing costs follows automatically: rating agencies assess the whole transaction and company, while market pricing also depends on conditions at the time.
How acquisition debt can affect credit quality
Borrowing to fund an acquisition adds debt to the combined company. If debt rises faster than earnings and cash generation, debt-to-EBITDA can increase and interest coverage can fall. More cash devoted to interest may leave less for investment, debt repayment, or ordinary operating needs. A deal can also reduce available liquidity or create significant near-term maturities, increasing refinancing risk.
These are several dimensions of credit quality changing at once, rather than a single ratio moving in isolation. S&P Global Ratings describes mergers and acquisitions as a possible step-change for credit quality, with effects on leverage, cash-flow stability, business risk, liquidity, and financial policy (S&P Global Ratings’ Rating Evaluation Service).
What rating agencies consider
Agencies use quantitative measures alongside qualitative judgments; their criteria and sector methods differ. S&P lists leverage, interest coverage, cash flow, and liquidity among the measures it considers, as well as business fundamentals (S&P’s credit ratings explainer). Fitch’s January 9, 2026 corporate criteria define leverage and interest-coverage measures, including cash interest in coverage analysis (Fitch’s Corporate Rating Criteria).
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- Debt and earnings: Pro forma debt and leverage depend on what debt is included and how EBITDA or cash adjustments are calculated.
- Interest burden: Coverage after financing depends on the amount and terms of borrowing; fixed versus floating rates and maturity profile matter where disclosed.
- Liquidity and refinancing: Agencies examine cash generation, available liquidity, and obligations coming due.
- Strategic fit and financial policy: The rationale for the acquisition, funding mix, transaction cost, and management’s approach to leverage can shape the assessment.
- Expected benefits: Analysts consider whether acquired earnings, synergies, and integration plans are credible and when they are likely to materialize.
No single leverage threshold determines ratings across all companies. Industry, business risk, cash-flow stability, capital structure, and the agency’s own criteria all affect the analysis.
Why the company’s prior plans matter
Rating agencies may have already considered an acquisition strategy or expected funding plan. In its December 6, 2024 corporate criteria, Fitch says a planned acquisition program may be reflected in the rating, though a specific proposed deal may still be checked against those assumptions. By contrast, an opportunistic acquisition that conflicts with a previously stated organic-growth strategy can prompt a rating review. An announced intention to expand through acquisitions without clear costs or funding details may also lead to review and potentially an Outlook or rating revision (Fitch’s December 2024 Corporate Rating Criteria). These examples describe possible agency responses, not a guaranteed rating action.
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How a rating could affect borrowing costs
A rating is one input into financing access and terms. If a debt-funded acquisition weakens credit measures or results in a negative rating action, lenders and bond investors may demand different terms, and the company may have fewer financing options. A company’s 2025 SEC-filed annual report, for example, says ratings can affect borrowing costs and access to additional financing and that ratings depend significantly on measures such as leverage and interest coverage (the issuer’s 2024 Form 10-K filed with the SEC in 2025).
That disclosure does not establish a universal spread increase or isolate the rating’s effect from other influences. Transaction terms and prevailing market conditions also affect pricing, so an acquisition’s financing cost cannot be inferred from a rating change alone.
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How to compare the credit impact of a deal
- Start with the funding and debt: Identify the transaction cost, funding mix, and pro forma debt, including the assumptions behind any cash or debt adjustments.
- Check earnings and coverage: Compare the interest burden and coverage after financing. Note whether EBITDA is reported, adjusted, or pro forma and what period it represents.
- Assess cash and maturities: Look at post-closing liquidity, cash generation, and refinancing needs, including the maturity profile and rate terms where transaction documents disclose them.
- Test the assumptions behind expected benefits: Examine the timing and credibility of acquired earnings, synergies, and integration plans.
- Compare the deal with the company’s stated strategy: Consider whether the acquisition and expected funding plan match what investors and rating agencies had previously been told.
Why acquisition-year ratios can mislead
Reported figures around closing may not show a full year of the enlarged company’s performance. S&P’s corporate methodology notes that a year-end balance sheet may include all the combined group’s debt even when the income statement and cash-flow record include less than a full year of the acquired business. That period mismatch can distort debt-coverage ratios, particularly when the acquired business is large.
Pro forma figures are estimates, not a guarantee of future performance. S&P says it generally does not assess M&A impact using pro forma EBITDA unless there is a compelling reason, because such figures are approximate and may reflect a different management team or accounting choices. When reviewing a company’s numbers, establish whether a ratio is reported, adjusted, or pro forma, and check its period and assumptions (S&P’s Corporate Method).
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