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17 Mar 2000
MOODY'S ASSIGNS B1 RATING TO VIASYSTEMS' NEW GTD SENIOR SECURED CREDIT FACILITY AND CONFIRMS B3 RATINGS ON VIASYSTEMS' SENIOR SUBORDINATED NOTES
Moody's Investors Service assigned a B1 rating to Viasystems' new $628 million guaranteed senior secured credit facility, consisting of a $150 million term loan B, due 2007, a $303.1 million Chips term loan, due 2005, comprised of $285.3 million loan principal and a $17.8 million interest reserve, and a $175 million 5-1/2 year revolving credit facility, which will remain undrawn at closing. At the same time, Moody's confirmed its B3 rating on Viasystems' outstanding $500 million 9-3/4% senior subordinated notes, due 2007. The B1 ratings on Viasystems' outstanding guaranteed senior secured credit facilities are additionally confirmed, but will be withdrawn upon the placement of Viasystems' planned initial public offering and the closing of the new bank facility. The company's senior implied rating of B1 and senior unsecured issuer rating of B2 are confirmed. The ratings outlook is stable.
The ratings take into account Viasystems' pro forma 4.3 times debt to cash flow leverage, assuming the company is successful in placing at least $850 million of the IPO, and reflecting the divestiture of nine of its existing printed circuit board (PCB) manufacturing facilities and the expected acquisitions of Wirekraft Industries, Inc., International Wire's wire harness subsidiary, and the network components and services business from Marconi Communications, Inc. Additionally, the ratings are based on the risks associated with integrating these acquisitions as well as continuing the migration of the commodity PCB business to China and the redeployment of much of the company's present capacity to the manufacture of more complex, higher layer count boards; the company's historically low 4.6% ROA and 7% ROI, based on EBITA; the highly leveraged pro forma balance sheet, based on book equity; the sizable $468 million asset impairment charge taken in FY1999Q4 related to the transfer of the operations formerly conducted by Interconnection Systems Limited, Forward Group, Zincocelere, and Viasystems Sweden to a new, independent entity formed by the company's existing stockholders; the high 32% of sales derived from the company's largest customer, Lucent Technologies, which contributed to the disappointing FY1999Q3 performance when revenues eased due to Y2K related order deferrals by Lucent's regional bell operating company (RBOC) customers; competition in the company's evolving electronic manufacturing services (EMS) markets from more established and firmly capitalized North American based concerns; and the prospective additional leverage and future integration challenges stemming from anticipated additional acquisitions.
More particularly, Moody's ratings reflect Viasystems' brief and controversial existence, which has featured the aggressive roll-up of both captive and merchant PCB operations; severe pricing pressure in the company's low layer count PCB markets, due to the convergence of significant currency fluctuations and the emergence of significant offshore competition from the Pacific rim which improved the relative cost position of the Asian producers; the absence, prior to FY1999H2, of a PCB fabrication facility in Asia; and the difficulties encountered in integrating and assimilating the nine divested facilities. The company's plants in Tyneside, England failed to meet management's yield and profitability targets due to a fractious labor force that only recently has begun to respond to new work rules and other incentives dedicated to reducing scrap. After having acquired Kalex Printed Circuit Board Ltd. from Termbray Industries International Limited in mid-1999, the company appeared to have resolved key production and pricing issues through the advent of its sourcing of 2-8 layered boards from a well-managed, highly profitable fabricator in the low cost labor markets of Guangzhou and Zhongshan, China, and be on its way to realizing the global business presence it had always sought. However, with the IPO and contemplated transactions, the company has set out to more aggressively develop its vertically integrated value-added assembly services model based on the leverage derived from its production of highly complex multi-layered PCBs and custom-designed backpanel assemblies. While there are indeed competitive advantages to this strategy, internal logistics and the reorientation of the company's marketing, sales and distribution will take on a somewhat different character from the organizational relationships that have previously prevailed.
The ratings are buttressed by Viasystems' reduction of total debt and debt leverage; the company's pro forma cash availability; margin enhancement from a higher proportion of value-added assembly services revenues, which would have accounted, on a pro forma basis, for 42% FY1999 sales; advanced PCB engineering and manufacturing capabilities at the company's Richmond, Virginia facility, acquired from Lucent, and the Echt, The Netherlands facility formerly operating as Mommers Print Service BV, that are being extended to the remaining plant locations; the early access to customers' new product designs that will be facilitated by the front-end design and fabrication of PCBs and backpanels in the enhanced business model; a premiere roster of telecommunications, networking, computer, industrial, automotive and consumer product customers; and the company's worldwide geographic expanse, including assembly and PCB facilities strategically situated in China.
Moody's additionally recognizes the wealth of entrepreneurial and operational talent dedicated to implementing Viasystems' business plan, accompanied by the largesse of the company's sponsors, Hicks, Muse, Tate & Furst, who have invested $507 million cash equity in the company and will not, at this time, be reimbursed from IPO proceeds. The much improved outlook for telecommunications investment worldwide, based on the strengthening Pacific rim economies, the increased demand for wireless communications services, and the rapid growth of the Internet, should augment customer demand in Viasystems' principal end use markets. The company's products include, or provide substantial functional elements of, various telecommunications switching and transmission equipment, including wireless base stations, as well as servers and data networking equipment such as hubs, routers and switches. The Wirekraft and Marconi acquisitions will augment Viasystems' supply chain management capabilities by enabling the company to accelerate its acquisition of wire harnesses and cable assemblies, custom power supplies, enclosures, racks, sub-racks and, through a joint venture, heat management systems. Furthermore, these products, when combined with the highly complex PCBs and customized backpanels, will enable the company to deliver and service fully integrated enclosures, enhancing its relationship with the OEM customer.
Pro forma sales for the LTM ended December 31, 1999 of $1.18 billion would have been about 7% higher than actual FY1999 sales of $1.102 billion and were 3.8% higher than pro forma FY1998 sales. The transferred operations accounted for about one-third of revenues but only about 12% of FY1999 EBITDA. The company will only pick up a net $18.4 million of EBITDA pro forma for the acquisition of the Wirekraft and Marconi operations and the spin off of the nine PCB facilities. Despite the application of IPO proceeds from the sale of 35% of the company, pro forma capitalization would remain highly leveraged with total debt of $946 million (94.6%) and an estimated $54 million equity (5.4%). On a pro forma basis, Viasystems will remain qualitatively highly leveraged with debt equivalent to 4.3 times pro forma FY1999 EBITDA due to the substantial proportion of cash flow derived from depreciation. Pro forma free cash flow, after deducting estimated FY2000 capital expenditures of $120 million, would have been provided 1.3 times pro forma fixed charges. The company estimates that it will have net operating loss carryforwards amounting to approximately $545 million which will not expire until 2018 or 2019.
The B1 rating on the company's new credit facility reflects the inability of the pledged collateral, net of pro forma available cash which could be drawn upon to fund future acquisitions, to adequately cover the amounts outstanding under the term loan B and Chips loan, according to Moody's estimates. Moody's assumes that asset recovery would be limited to a significant proportion of the company's PP&E situated within North America only, a similar proportion of North American based inventory, and the predominant share of the company's receivables based on the company's very strong customer base. Only 41% of long-lived assets identified on the December 31, 1999 balance sheet were located in the United States and Canada. Furthermore, about 60% of long-lived assets were comprised of PP&E, with intangibles and deferred financing fees accounting for most of the difference. The credit facility will be secured by a perfected first priority lien in all of the capital stock of Viasystems and its direct and indirect domestic subsidiaries as well as 65% of the stock of all first tier foreign subsidiaries, and all tangible and intangible assets. The covenants limit the company's leverage to 4.75 times total net debt to consolidated EBITDA and 2.75 times senior debt, net of cash on hand, to consolidated EBITDA. Consolidated EBITDA coverage of interest must be at least 2.25 times for the LTM ending June 30, 2000.
Viasystems Inc., headquartered in St. Louis, Missouri, has evolved from a manufacturer and marketer of printed circuit boards and custom-designed backpanels for telecommunications, computer, automotive, military and other industrial uses to a leading, full-service worldwide provider of electronics manufacturing services.
No Related Data.
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