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14 May 2010
Approximately $734 Million Of Debt Obligations Affected
New York, May 14, 2010 -- Moody's Investors Service affirmed the Corporate Family and Probability
of Default ratings of UCI Holdco, Inc. (Holdco) at Caa1.
Holdco is the ultimate parent of United Components, Inc.
(UCI). In a related action, Moody's also affirmed the
rating of Holdco's unguaranteed senior unsecured note at Caa3; the
rating of UCI's senior secured term loan at B1; and the rating of
UCI's senior subordinated notes at Caa2. The rating outlook was
revised to stable from negative.
Holdco's Caa1 Corporate Family and Probability of Default ratings reflect
the company's stabilizing operating performance and improved ability
to generate free cash flow. This should enable the company to rebuild
its liquidity profile even in the absence of a committed revolving credit
facility. The company's profitability has improved over recent
quarters due to the effects of cost reduction initiatives and lower commodity
costs. Continuation of this operating performance reduces downward
pressure on the ratings over the near-term. However,
Holdco's risk profile remains consistent with the Caa rating category
given the company's high leverage and intermediate-term refinancing
needs. The company faces major increases in cash requirements for
debt service beginning in December 2011 with increased amortization requirements
under the term loan of approximately $27 million, followed
by about $72 million in March 2012 along with cash interest payment
requirements on the Holdco unguaranteed notes beginning March 2012.
Additionally, the company expects to make a $96.5
million payment on the Holdco notes in March 2012 in order to avoid losing
certain tax benefits created by issuing the notes. These increased
cash requirements suggest a need for the company to refinance its debt
obligations over the coming 18 months, and constrain the rating
in the Caa category at this time.
UCI continues to be one of North America's largest automotive aftermarket
suppliers, and holds a relatively stable position in supplying aftermarket
parts that are critical to vehicle performance. The company's filtration
products (about 39% of 2009 revenues) are largely consumables that
have relatively short and predictable replacement cycles and are somewhat
resistant to economic downturns. The company's fuel, cooling,
and engine management products (about 61% of 2009 revenues) are
non-discretionary products that are required for proper vehicle
performance, and have more stable demand patterns which offer important
revenue visibility. As the domestic vehicle population is expected
to increase, albeit at slower rates, the average vehicle age
should continue to increase.
The stable outlook incorporates Moody's expectation that Holdco's
operating performance will continue to improve over the intermediate term
as economic conditions stabilize and consumer spending increases.
This improvement is expected to permit Holdco to build cash at a modest
rate over the intermediate-term. However, the outlook
also reflects the ongoing risks of the company's decision to operate without
a committed revolving credit facility and the need to execute a successful
refinancing plan over the intermediate term. While receivable factoring
has supported increasing cash balances, it is an uncommitted source
of funds. For the LTM period ending March 31, 2010,
the company's Debt/EBITDA (including the Holdco notes) was approximately
6.9x (including Moody's standard adjustments), and EBIT/Interest
Over the next 12 to 24 months Holdco's liquidity profile will be subject
to significant challenges. The company continues to build cash
balances to mitigate the absence of a committed long-term revolving
credit facility. As of March 31, 2010, unrestricted
cash approximated $166 million. However, large amounts
of uncommitted receivable factoring, about $132 million as
of March 31, 2010, has supported this cash build up.
Moody's expects Holdco's cash balances to benefit from stable
near-term operating performance and positive free cash flow generation
during the near term, but the company will need to successfully
complete a refinancing plan to address increasing cash requirements for
debt repayment over the intermediate term.
The following ratings were affirmed:
UCI Holdco, Inc.:
Caa1, Corporate Family Rating;
Caa1, Probability of Default Rating;
Caa3 (LGD5, 85%), unguaranteed senior unsecured notes;
United Components, Inc.
B1 (LGD1, 8%), $172 million (remaining amount)
guaranteed senior secured bank term loan due 2012;
Caa2 (LGD4, 58%), $230 million of guaranteed
senior subordinated notes maturing 2013
The last rating action for Holdco was on August 19, 2009 when the
Corporate Family Rating was confirmed at Caa1 and the outlook was revised
The principal methodology used in rating Holdco was Moody's Global Auto
Supplier Industry Methodology, published in January 2009 and available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
UCI, headquartered in Evansville, Indiana, is one of
the larger and more diversified companies primarily servicing the vehicle
aftermarket. The company supplies a broad range of filtration products,
fuel products, cooling systems, and engine management systems.
While approximately 88% of revenues are automotive related,
UCI also services customers within the trucking, marine, mining,
construction, agricultural, and industrial vehicle markets.
Annual revenues in 2009 were approximately $885 million.
UCI is an indirect wholly owned subsidiary of UCI Holdco, Inc.
(Holdco), which is a portfolio company of the Carlyle Group.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
Moody's Affirms Ratings of UCI Holdco; outlook stable
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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