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Rating Action:

MOODY'S INVESTORS SERVICE ASSIGNS RATINGS OF B2 AND B3 FOR VIASYSTEMS' EXISTING REVOLVER AND NEW TERM LOAN B; EXISTING RATINGS AFFIRMED

01 Oct 2004
MOODY'S INVESTORS SERVICE ASSIGNS RATINGS OF B2 AND B3 FOR VIASYSTEMS' EXISTING REVOLVER AND NEW TERM LOAN B; EXISTING RATINGS AFFIRMED

$200 Million of Debt Securities Affected.

New York, October 01, 2004 -- Moody's Investors Service assigned new ratings to Viasystems, Inc.'s existing senior secured revolving credit facility and new senior secured term loan of B2 and B3, respectively. Moody's also affirmed the company's existing ratings. The company's rating outlook remains stable. These ratings reflect the company's modestly improved operating performance, still highly leveraged capital structure and adequate liquidity position. The ratings assigned to the credit facilities incorporate the supporting security and guarantees, as well as the second priority position assumed by the term loan obligations to that of the revolver. The following ratings were affirmed:

(i) Senior Implied Rating of B3;

(ii) Long-Term Issuer Rating of Caa1; and

(iii) $200.0 million 10 1/2% senior subordinated notes due January 2011, rated Caa2.

Viasystems continues to face challenges generating meaningful profitability margins and positive free cash flow. This results from the company's existing raw material cost pressures, somewhat onerous debt servicing requirements, working capital needs to support ramped Asian printed circuit board business, and associated plant expansion requirements. At the same time, the ratings incorporate the company's ability to generate modestly improved operating performance since emerging from Chapter 11 protection, driven by some combination of solid and sustained demand for printed circuit board manufacturing out of China, a largely improved global economic environment and ongoing demand stability from the company's less volatile end markets (i.e., white goods, automotive and industrial). Moody's expects the company to generate mid-single digit sales growth, equally driven by favorable PCB demand trends as well as continued steady growth from each of the white goods and automotive sectors. Nonetheless, near to intermediate term growth constraints resulting from some combination of broader technology spend deceleration and a global economy experiencing a "soft patch" will place certain pressures on the company's targeted price increases, operating margin expansion and more meaningful positive cash flow expectations for 2005.

The ratings also incorporate the somewhat modest amount of liquidity currently possessed by Viasystems. Specifically, $50 million of the estimated $68 million excess net proceeds from the term loan refinancing and privately placed common stock rights offering has been earmarked for China manufacturing facility expansion. Accounting for the residual, together with existing cash & equivalent balances totaling $55 million and access to its committed, $51 million revolver, Viasystems' on-hand liquidity does not leave significant margin for error. From a cash flow generating perspective, Moody's expects the company to generate break-even to slightly positive free cash flow through 2005 as marginal increases in gross cash flow (net income plus non-cash adjustments) are partially offset by top-line growth driven increases in working capital investment and maintenance capital spend. This is compounded by the possible event risk confronting the company as a result of its significant reliance on and exposure to the predominant China-based operations, not to mention the foreseeable operational challenges that could result from adverse geopolitical events. At a minimum, the light term loan amortization requirements provide the company with maximum operational flexibility in what may be a more challenged operating environment over the near to intermediate term.

Offsetting these core business risks, the company possesses materially increased diversification in terms of end markets served (~64% net sales generated from non-technology & telecommunication sectors; up from only 25% in 2000) and customer concentrations (2000: largest customer 21% net sales; June 2004: top customer 12%; top 5 customers 46%) since its emergence from Chapter 11. Further, Viasystems possesses market leadership position in nearly all component business units, with a undisputable position as the largest PCB manufacturer in the high growth China PCB marketplace and greater than 55% market share in the North American white goods wire harness markets. Finally the ratings take into account the company's distinguished operating advantage within the increasingly valuable Asian PCB manufacturing marketplace, bringing to bear tangible technological leadership and a proven ability to migrate such technological expertise from Western Hemisphere operations to its low cost China facilities.

The company's rating outlook is stable, anticipating that Viasystems will continue to generate slightly upward trending net sales generation, modest expansion in margins as raw material inflationary pressures recede and break-even to positive free cash flow generation. The ratings could be negatively impacted by some combination of (i) faltering global economic conditions and the repercussions to technology spend, OEM price pressures and discretionary spend for automotive and white goods offerings; (ii) unexpected faltering in Asian PCB demand as global technology spend patterns slow and possibly turn negative; and (iii) increased liquidity strains resulting from such slowed sales trends, increased competitive intensities and weakened working capital practices. Conversely, the ratings could be pressured upwards from some combination of (i) sustained operational strengthening, consisting of $1+ billion in sales, low 20s% gross and low teens operating margins, moderate profitability and significant, positive free cash flow; (ii) financial deleveraging (increased EBITDA and accelerated term loan reduction) and (iii) an ability to maintain 75%+ utilization rates for significantly invested China facilities.

The credit facilities are supported by a downstream guarantee from the borrower's holding company parent as well as upstream guarantees from each of the borrower's direct and indirect domestic subsidiaries. The facilities are also supported by a perfected security position in all the assets of the borrower, all or substantially all the assets of the guarantors and a pledge of 66 2/3% voting stock of the first tier foreign subsidiaries. Finally, through an intercreditor agreement, the new term loan obligations assume a second priority to those of the revolver as it relates to security, guarantees and overall rights of payment. Taking into account this beneficial first priority position provided to the revolver and its commitment size ($51.3 million) in relation to the pledged tangible assets as well as the company's perceived enterprise value, the facility rating has been notched up to B2 from the senior implied rating of B3. Conversely, due to the significant size of the term loan, the implied value offered by the security and guarantors is less meaningful to warrant such notching benefit from the senior implied rating.

Pro forma for this recapitalization, Viasystems' senior and total leverage will increase modestly from 2.5x and 4.5x TTM Adj. EBITDA (June 30, 2004) to 2.7x and 4.8x. The term loan repricing results in the company's TTM Adj. EBITDA to Interest Coverage improving slightly from 2.8x to 2.9x (pro forma for refinancing at lower borrowing spread).

Headquartered in St. Louis, Missouri, Viasystems, Inc. is a leading worldwide provider of complex multi-layer printed circuit boards, wire harnesses and electro-mechanical solutions utilized for a wide variety of applications ranging from major household appliances and automotive dash panels to data networking and telecommunications switching equipment. For the last twelve months ended June 2004, the company generated approximately $850 million in net sales and $96 million in Adjusted EBITDA (excludes non-recurring and unusual charges).

New York
Tobias Lewis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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