Approximately $365 million of rated debt affected
New York, April 05, 2012 -- Moody's Investors Service assigned first time ratings to August Cayman
Intermediate Holdco, Inc., - Corporate Family
and Probability of Default Ratings at B2. In a related action,
Moody's assigned a B1 rating to the new $265 million senior secured
first lien revolver and term loan facilities, and Caa1 rating to
the new $100 million senior secured second lien term loan.
The proceeds from the senior secured term loans along with $205
million of cash will be used to fund the purchase of Schrader International
from Tomkins PLC for approximately $505 million and pay fees and
expenses related to the transaction. The rating outlook is stable.
The ratings of August Cayman Intermediate Holdco, Inc. reflect
the consolidated ongoing acquired operations of Schrader International.
The following ratings were assigned:
August Cayman Intermediate Holdco, Inc.
Corporate Family Rating, B2;
Probability of Default, B2
August U.S. Holding Company, Inc.:
B1 (LGD3, 36%) to the $35 million senior secured first
lien revolving credit facility (also available to August LuxUK Holding
Company);
B1 (LGD3, 36%) to the $100 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, 36%) to the $130 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
August Cayman Intermediate Holdco, Inc.'s B2 Corporate
Family Rating reflects the operating performance and competitive position
of Schrader International (Schrader). The ratings incorporate Schrader's
modest size, high customer concentrations, and high pro forma
leverage following the company's acquisition. One of the
key risks facing Schrader is high customer concentration within its sensors
and components business which makes up about 70% of the company's
revenues. Most of the company's revenues for this segment
are concentrated among ten automotive OEM customers, with approximately
70% of sales going to the Detroit-3. Consequently,
Schrader's operating performance, and credit metrics will
remain highly vulnerable the cyclicality in the automotive sector and
to potential customer losses. The combination of these risks along
with the company's relatively high pro forma leverage of approximately
4.3x (inclusive of Moody's adjustment) supports the assigned
rating.
Through its sensors and components segment, Schrader is the leading
producer of tire pressure monitoring systems (TPMS) in the US auto market,
with the majority of its sales going to automotive OEMs. This strong
OEM position and the outlook for continued growth in US vehicle sales
should be the principal drivers of the company's operating performance
over the intermediate-term.
The complete regulatory phase-in of TPMS on US passenger cars began
in 2007. Beginning in 2013, the battery replacement cycle
of the initially-installed units should begin to take hold.
Over the long-term, this replacement cycle should afford
Schrader with additional aftermarket opportunities. The company
is also expected to benefit from the regulatory phase-in of TPMS
in Europe beginning in 2012. Yet, these regulatory requirements
may drive an increasing number of industry participants or pricing pressure
among existing competitors in the TPMS market resulting in downward pressure
on profit margins. Approximately 80% of the company's
revenues are currently driven by North American passenger car original
equipment manufacturers. As the battery replacement cycle begins
and regulations in Europe drive higher TPMS usage, the company is
expected to experience greater OEM/aftermarket, and geographic diversity
over intermediate-term.
The stable outlook incorporates Moody's expectation that Schrader's
operating performance and adequate liquidity profile over the near-term
will support the assigned rating. Demand for TPMS is expected to
strongly grow in 2013 and 2014 driven by battery replacement cycles in
North America and European regulatory requirements. Yet,
Moody's anticipates that the competitive threat of a number of new
market participants supplying TPMS products may constrain margins in both
the original equipment and aftermarket.
Schrader is anticipated to maintain 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
is expected to generate positive free cash over the near term driven by
strong EBIT margins which should support incremental working capital and
capital expenditure needs as revenues grow. The proposed revolving
credit facility is expected to be unfunded as of the closing of the transaction
and remain largely unused over the next twelve months. Financial
covenants for the first lien credit facilities are anticipated to include
a maximum net total leverage test and a minimum cash interest test.
Financial covenant levels have not been determined as of this writing.
Alternate liquidity is limited as substantially all of the company's assets
are expected to secure the credit facilities.
The outlook or rating could be raised if demand for TPMS in 2013 and beyond
drives stronger revenues and profit margin growth resulting in EBIT/Interest
sustained above 2.3x and Debt/EBITDA sustained below 3.5x.
In addition, these results also will need to coincide with a financial
policy that is focused on debt reduction rather than shareholder returns.
The outlook or rating could be lowered if demand for TPMS does not achieve
expectations or if the company's profit margins come under competitive
pressure. A lower outlook or rating could result if debt/EBITDA
exceeds 5.0x, if EBIT/Interest approaches 1.2x,
or if liquidity deteriorates. Shareholder distributions at the
expense of debt reduction could also lower the company's rating or outlook.
The principal methodology used in rating Schrader International 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.
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 2011 revenues of
$452.3 million and will be owned by affiliates of Madison
Dearborn Partners.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
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 assigns ratings to August Cayman Intermediate Holdco, Inc. (Schrader International), CFR at B2
