Fitch Ratings revised the rating outlook from negative to Stable for auto-parts suppliers American Axle & Manufacturing Holdings Inc. (AXL), Tenneco Inc. (TEN) and TRW Automotive Holdings Corp. (TRW). However, it retained a negative rating watch on ArvinMeritor Inc. (ARM). The international rating agency affirmed their current issuer default ratings of CCC for American Axle and ArvinMeritor and B-minus for Tenneco and TRW.
Fitch expects American Axle to finalize an agreement with General Motors (GM), which will bring a one-time payment of $110 million from GM, who will also offer a $100 million term loan, extending through 2013. In return, American Axle will offer GM up to 19.9% of its equity as warrants. The company does not have any debt maturities until its $250 million term loan is due in 2012. However, Fitch does not expect American Axle to generate free cash flow in 2009. The company needs to make a $20 million contribution to pension plan, which remained underfunded by $255 million in 2008. The company also needs to make a $15 million contribution to its retirement plan in 2009.
Fitch expects ArvinMeritor to continue to face difficulties in selling its remaining assets in the light-vehicle segment. The company may also seek a debt covenant relief for the quarter ending Sept 30. Fitch expects ARM’s operating losses and restructuring costs to result in negative cash flows for 2009. ArvinMeritor has no debt maturities until 2011 and the company’s pension is moderately (7%) underfunded. Fitch expects the underfunded status to increase, which could require incremental contributions over the next several years.
Fitch believes that a diverse product offering and geographic distribution should help Tenneco survive the ongoing recession. Like peers, Tenneco was also impacted by the extended production disruptions. However, with the production restarts at the automakers and Tenneco’s restructuring efforts, profits should improve in the second half of 2009. The company does not have any significant debt maturities until 2012 when $700 million of the $830 million of the credit facility expires. Tenneco has a $249 million underfunded pension plan, which is likely to require incremental contributions over the near term.
Fitch’s ratings revision on TRW Automotive reflects improved operating performance, the recent equity issuance, a credit agreement amendment and significant liquidity. TRW recently raised equity and net proceeds were $269 million. One-third of the net proceeds was used to reduce the term loans while the balance was used to lower borrowings on the revolving credit facility. The company has no near-term debt maturities and the revolver extends through 2012. However, the agency expects negative cash flow in 2009.
Fitch had initiated the Rating Watch on Dec 11, 2008 on fears of possible bankruptcies of GM and Chrysler. Following the bankruptcies of the two automakers, the Rating Watch remained in effect due to apprehensions about lower volumes post-bankruptcy.
Fitch expects the global automotive environment to remain challenging in the near term with sales in Europe declining considerably in 2010. However, sales in North America are expected to improve in the second half of 2009 and 2010 on the back of the government’s Cash for Clunkers program, which is nearly completed, aggressive vehicle pricing, consumer access to vehicle financing which was difficult to obtain in the early 2009 and a reduction in dealer inventories. The parts suppliers should also benefit from the significant restructuring actions taken before and during the global automotive slump. With higher production volumes, auto suppliers will be using cash for working capital needs in the second half of the year and Fitch expects most suppliers should have adequate liquidity while production increases.
Read the full analyst report on “AXL”
Read the full analyst report on “TEN”
Read the full analyst report on “TRW”
Read the full analyst report on “ARM”
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