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Rating Action:

MOODY'S LOWERS RATING TO Ca ON VIASYSTEMS' SENIOR SUBORDINATED NOTES; RATINGS ON GTD SENIOR SECURED BANK CREDIT FACILITIES CONFIRMED AT B3

28 Jun 2002
MOODY'S LOWERS RATING TO Ca ON VIASYSTEMS' SENIOR SUBORDINATED NOTES; RATINGS ON GTD SENIOR SECURED BANK CREDIT FACILITIES CONFIRMED AT B3

Approximately $1.1 Billion of Debt Securities Affected.

New York, June 28, 2002 -- Moody's Investors Service lowered Viasystems Group, Inc.'s senior subordinated note rating and confirmed the ratings on its guaranteed senior secured bank credit facilities. The company's ratings outlook was revised to stable from negative. A summary of the ratings activity follows:

(i) Lowered to Ca from Caa3 Viasystems' $500 million 9-3/4% senior subordinated notes, due 2007;

(ii) Confirmed the B3 rating on Viasystems' $148 million guaranteed senior secured tranche B term loan, due 2007;

(iii) Confirmed the B3 rating on Viasystems' $289 million guaranteed senior secured Chips term loans, due 2005;

(iv) Confirmed the B3 rating on Viasystems' $150 million guaranteed senior secured revolving credit facility, due 2005, of which $71 million had been drawn as of March 31, 2002;

(v) Senior implied rating lowered to Caa2 from B3; and

(vi) Senior unsecured issuer rating lowered to Caa3 from Caa1.

The ratings downgrades are based on heightened uncertainty over the principal amount recoverable on Viasystems' senior subordinated notes, whether based on the implicit valuation of equity to be exchanged for the notes under a proposed recapitalization, or on some combination of equity and reduced note principal, as subject to negotiation; and the recognition that agreement on a debt restructuring plan that commands the tacit approval of Viasystems' bank lenders could be difficult to obtain. The risk lies in Viasystems' ability to strengthen its balance sheet and improve upon its free cash flow coverage of fixed charges, made all the more urgent by the company's missed June 1 interest payment on the notes. A successful resolution would be contingent upon the company, its pre-IPO shareholder, Hicks, Muse Tate & Furst, and an ad hoc committee of noteholders coming to agreement on a proportion of equity ownership that could be exchanged for the notes, and possibly identifying sources for additional equity investment in the company. Secondly, the resolution would have to engender support from the remaining stakeholders, including those noteholders who haven't participated in the discussions to date, preferring not to submit to trading restrictions on the notes, as well as the company's vendors and bank lenders. The risk is mitigated, to some degree, by the bank lenders' continued support, as evidenced by unanimous consent to a third amendment to the bank credit facility under which the banks agreed to forbear from exercising various remedies after the company failed to comply with its senior debt leverage covenant. This arrangement, originally in place through May 29, 2002, was subsequently extended by 90 days. Additionally, Hicks, Muse, having recently increased its investment in the company through open market purchases of $232 million of the senior subordinated notes and $51 million of the company's senior secured bank debt, presumably at discounted prices, would be motivated to bring about a consensus for ameliorating Viasystems' capital structure.

In Moody's opinion, Viasystems maintains adequate liquidity to continue to operate in this environment, although the company's exposure to the telecommunications end market will continue to pressure operating margins. As of March 31, 2002, the company recorded $70 million cash on hand with about $18 million borrowing availability under the revolver, which is currently limited to $100 million. During FY2002Q1 the company applied over $14 million in cash toward operations, largely to fund losses and an increase in accounts receivable, and utilized another $7 million for capital expenditures.

The ratings on the bank credit facilities and revised outlook are based on our belief that Viasystems' bank lenders will continue to exercise forbearance, providing sufficient time for the company, Hicks, Muse and the senior subordinated noteholders to reach an agreement. To date, the company announced that it has come to an understanding involving, at minimum, the exchange of the $500 million of senior subordinated notes principal for equity under a recapitalization, but the participants in the discussions, including Hicks, Muse, comprise only 68% ownership share of the notes. Under the Indenture, any amendment that would reduce the principal of the notes would require the consent of each noteholder. Furthermore, the proposed exchange of senior subordinated notes for equity would still leave the company with a negative consolidated tangible net worth, barring additional conversions of debt to equity and/or an additional equity investment in the company by new or existing investors. Hicks, Muse had previously invested $507 million of cash equity in Viasystems, and during 2001 loaned the company $100 million through the purchase of senior discount notes.

Viasystems' FY2002Q1 net revenues decreased to $225 million, the fifth consecutive quarterly decline and only 49% of FY2000Q4 peak revenues of $456 million. Adjusted EBITDA of $86 million for the LTM ended March 31, 2002 would not have covered fixed charges over that period, but would have provided over 2 times coverage of pro forma interest requirements on solely the $508 million senior secured bank debt going forward. The company must additionally confront term loan amortization requirements of $28.5 million in FY2003 and $56 million in FY2004. As of March 31, total debt outstanding amounted to 13.5 times LTM EBITDA, while the senior secured debt was about 6.1 times. FY2001 capital expenditures were nearly $79 million, although capex was pared substantially in FY2002Q1. While accounts receivable increased to $178 million by the end of FY2002Q1 from $157 million at year-end, days sales outstanding were about the same, declining to 68 days from 69 days.

Under the third amendment to the credit agreement, and reenforced under the guarantee and collateral agreement, Viasystems' bank lenders have received a pledge as well as a further security interest, for as long as any Event of Default remains uncured, in Viasystems' Chinese operating companies, including the printed circuit board fabrication operations in Guangzhou and Zhongshan obtained in the 1999 acquisition of Kalex Printed Circuit Board Ltd. Viasystems' Asian assets, all of which are in China, included over 2.5 million square feet of plant floor owned, approximately 300,000 square feet of plant floor leased, and a complement of manufacturing equipment, much of which was resituated from certain of the company's North American installations in 2001. The book valuation of these assets was recorded at $370 million as of December 31. Successful execution within China would be strategically important to any global electronics manufacturing services provider, due not only to China's very low labor costs, but also to the increasing importance of local content specified for OEM shipments destined for the Chinese market. The scale of Viasystems' China operations, their existing qualification by leading OEM customers, and the validation of the business by key vendors could be instrumental in a successful marketing effort. If the company is unable to successfully recapitalize, prospective proceeds from a sale of the Chinese operations could be supplemented by recovery from assets in North America, which were valued on December 31 at $441 million.

Viasystems Group, 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 provider of electronics manufacturing services.

New York
Steven Oman
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

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