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Rating Action:

Moody's affirms August Cayman Intermediate Holdco, Inc.'s (Schrader International) CFR at B2, outlook changed to negative

Global Credit Research - 08 May 2013

Approximately $365 million of rated debt affected

New York, May 08, 2013 -- Moody's Investors Service affirmed the ratings of August Cayman Intermediate Holdco, Inc. (Schrader International), - Corporate Family and Probability of Default Ratings at B2, and B2-PD, respectively. In a related action, Moody's affirmed the B1 rating to the senior secured first lien revolver and term loan facilities, and the Caa1 rating on the senior secured second lien term loans. The rating outlook was changed to negative from stable.

The following ratings were affirmed:

August Cayman Intermediate Holdco, Inc.

Corporate Family Rating, B2;

Probability of Default, B2-PD

August U.S. Holding Company, Inc.:

B1 (LGD3, 37%) to the $35 million senior secured first lien revolving credit facility (also available to August LuxUK Holding Company);

B1 (LGD3, 37%) to the $102.2 million senior secured first lien term loan facility;

Caa1 (LGD5, 89%) to the $43.5 million senior secured second lien term loan facility

August LuxUK Holding Company:

B1 (LGD3, 37%) to the $132.8 million senior secured first lien term loan facility;

Caa1 (LGD5, 89%) to the $56.5 million senior secured second lien term loan facility

RATING RATIONALE

The affirmation of Schrader International's B2 Corporate Family Rating reflects Moody's belief that the company continues to be well positioned to participate in the expected increase in demand for tire pressure monitoring systems (TPMS) as European regulatory requirements come into effect for model year 2014 and 2015, and the battery replacement cycle of the initially-installed units in North America takes hold. Through the company's sensors and components segment, Moody's believes that Schrader is the leading producer of TPMS in the US auto market, with the majority of its sales going to automotive OEMs. Management also indicates that the company continues to win additional business in both North America and Europe. Yet, while the company's performance has been favorably impacted by recovering automotive demand in North America, growth in non-TPMS business and European markets have underperformed expectations. As a result of the lower than expected revenue growth, Moody's estimates the company's 2012 pro forma EBIT/interest coverage (including Moody's standard adjustments) to be about 1x and Debt/EBITDA at over 6x.

The negative rating outlook incorporates Schrader's underperformance to Moody's expectations in 2012 and the expectation that this under performance will continue through 2013, as a result of continuing regional economic weakness in Europe. The company's metrics, which have met the downward rating drivers established when the ratings were initially assigned, are expected to remain weak for the assigned rating until 2014.

Schrader is currently in discussions with its bank group to renegotiate pricing under its bank credit facilities. While a positive outcome to these discussions would support improved credit metrics in 2013, Moody's believes these credit measures would continue to approach the previously established downward rating drivers.

Schrader is anticipated to continue to have an adequate liquidity profile over the next twelve months supported by free cash flow generation and availability under the $35 million revolving credit facility. The company's cash flow generation is expected to be modestly positive over the near-term as lower growth expectations drive lower working capital needs. The revolving credit facility is expected to be partially funded over the near-term with a small amount of letters of credit outstanding. Financial covenants for the first lien credit facilities include a maximum net total leverage test. Moody's estimates that the company has sufficient covenant cushion over the near-term to support operating flexibility. Alternate liquidity is limited as substantially all of the company's assets secure the credit facilities.

The rating could be lowered if demand for TPMS does not improve as anticipated or if the company's profit margins come under competitive pressure. A lower rating could result if debt/EBITDA is expected to be sustained above 6x or if EBIT/Interest is expected to be sustained around 1x through 2014, or if liquidity deteriorates. Shareholder distributions at the expense of debt reduction could also lower the company's rating or outlook.

The outlook could be raised if demand for TPMS in 2013 and beyond drives stronger revenues and profit margin growth resulting in EBIT/Interest approaching 2x and Debt/EBITDA approaching 4.5x. In addition, these results also will need to coincide with a financial policy that is focused on debt reduction rather than shareholder returns.

Schrader International ("Schrader" or the "Company") is an industry leading manufacturer of Tire Pressure Monitoring Systems ("TPMS"), Fluid Control Components and Tire Hardware & Accessories for the automotive and industrial original equipment market and aftermarket. The company generated 2012 revenues of $436 million and is owned by affiliates of Madison Dearborn Partners.

The principal methodology used in this rating was the Global Automotive Supplier Industry Methodology published in January 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms August Cayman Intermediate Holdco, Inc.'s (Schrader International) CFR at B2, outlook changed to negative
No Related Data.

 

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