Approximately $3.3 billion of rated obligations affected
New York, March 20, 2012 -- Moody's Investors Service raised the ratings of Delphi Corporation -
Corporate Family and Probability of Default Ratings to Ba1 from Ba2.
Delphi Corporation is the U.S. based subsidiary of Delphi
Automotive, PLC (Delphi). In a related action Moody's raised
the ratings on Delphi's senior secured credit facilities and senior unsecured
notes to Baa2 and Ba2, respectively. The Speculative Grade
Liquidity Rating is affirmed at SGL-2. The rating outlook
is stable.
The following ratings were raised:
Delphi Corporation:
Corporate Family Rating, to Ba1 from Ba2;
Probability of Default, to Ba1 from Ba2;
Senior secured revolving credit facility, to Baa2 (LGD2 18%)
from Baa3 (LGD2, 22%);
Senior secured term loan A, to Baa2 (LGD2 18%) from Baa3
(LGD2, 22%);
Senior secured term loan B, to Baa2 (LGD2 18%) from Baa3
(LGD2, 22%);
Senior unsecured notes due 2019, to Ba2 (LGD2 64%) from Ba3
(LGD4, 66%);
Senior unsecured notes due 2021, to Ba2 (LGD2 64%) from Ba3
(LGD4, 66%)
The following rating was affirmed:
SGL-2, Speculative Grade Liquidity Rating
RATINGS RATIONALE
The upgrade of Delphi Corporation's Corporate Family Rating (CFR)
to Ba1 reflects our expectation that Delphi will continue to demonstrate
improved credit metrics as it leverages its low-cost manufacturing
footprint to deliver on new platform wins with global auto manufacturers.
For fiscal 2011, Delphi's debt/EBITDA and EBIT/interest were
1.5x, and 9.1x, respectively, pro forma
for the debt issuance in March. Delphi's competitive position
in the automotive parts supplier industry is supported by its technology
leadership, strong customer and geographic diversity and low cost
structure. The company has continued to diversify its customer
base with General Motors, which accounted for 41% of revenue
in 2007 and now only accounts for 19% in 2011, as the company
has exited unprofitable activities and grown business with other manufacturers.
Delphi's ability to penetrate new customers has enabled it to deliver
revenue growth in 2011 of 16%, well in excess of global trends.
New business wins of $23.5 billion in 2011 should facilitate
further revenue growth and market share gains as these programs are executed
over the intermediate term.
While Moody's expects global auto demand to increase in the 4-5%
range in 2012, the performance of individual regions will vary considerably,
and Delphi's geographic and product diversity will help sustain
favorable operating metrics. Europe, which accounted for
45% of 2011 revenue, is likely to see flat to declining auto
demand in the near term. Yet, with a strong presence in aftermarket
sales, a good mix of luxury vehicles and commercial vehicle components,
and further penetration of new programs Delphi should see continued favorable
performance. Growth regions such as North America and Asia which
represented about 32% and 16% of 2011 revenues, respectively,
are likely to be of growing importance until European auto demand recovers.
Moreover, Delphi's strong EBIT margin, 10.6%
for 2011 (using Moody's standard adjustments), is supported
by a flexible cost structure with a large portion of the hourly workforce
now in low cost manufacturing locations, and provides cushion to
withstand cyclical weakness in automotive demand.
The stable rating outlook reflects Moody's view that Delphi will be able
to sustain its strong credit metrics over the intermediate-term
despite the recessionary environment in Europe, increasing competitive
pressures on the company's major domestic customers from Asian OEMs,
and rising raw material costs.
The SGL-2 Speculative Grade Liquidity Rating reflects Moody's
expectation that Delphi will maintain a good liquidity profile over the
near-term supported by strong cash balances, free cash flow
generation, and availability under the revolving credit facility.
As of December 31, 2011, Delphi had cash and cash equivalents
of $1.4 billion, not including restricted cash of
about $9 million. Positive free cash generation over the
near-term is expected to be supported by the company's strong
EBIT margins; modest global automotive industry growth allowing for
moderate working capital usage; and minimal term loan amortization
required. The $1.3 billion revolving credit facility
was unfunded at December 31, 2011 with about $9 million of
letters of credit outstanding. The only financial covenant under
the bank credit facility is a net leverage ratio test for which the company
is expected to maintain ample covenant cushion over the near-term.
Alternate liquidity is supported by a debt incurrence basket under the
credit facilities which permits additional amounts of foreign account
receivable factoring and other foreign debt.
An improving balance of profitability in the regions in which the company
operates would be a key factor in considering the potential for higher
ratings. Delphi also must continue to demonstrate conservative
financial policies with regard to shareholder friendly actions,
as a large portion of the company's shareholders continue to represent
pre-emergence debt holders. Achieving the above while sustaining
a strong liquidity profile and maintaining EBIT margins above 10%
and Debt/EBITDA below 2.0x, both on a Moody's adjusted
basis, could support a higher rating or outlook.
Factors that have the potential to lower Delphi's rating or outlook include:
deterioration of automotive demand or greater raw material cost pressures
resulting in EBIT margins approaching 7%, as well as debt
funded acquisitions or other large shareholder actions. Consideration
for a lower outlook or rating could result if any of these factors lead
to Debt/EBITDA above 2.5x or a deterioration in liquidity.
The principal methodology used in rating Delphi Automotive, PLC
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.
Delphi Automotive, PLC is a supplier of vehicle electronics,
transportation components, integrated systems and modules,
and other electronic technology. Delphi operates globally and has
a diverse customer base, including every major vehicle manufacturer.
Revenues in 2011 were approximately $16 billion.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. 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.
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this announcement provides relevant regulatory disclosures in relation
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rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
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rating action for securities that derive their credit ratings from the
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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,
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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 upgrades Delphi Corporation, Corporate Family Rating to Ba1
