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Rating Action:

Moody's Rates Viasystems' Add-on Notes B1; Revises Rating Outlook to Negative from Stable; B2 CFR affirmed

10 Apr 2014

Approximately $600 million of Rated Debt Securities Affected

New York, April 10, 2014 -- Moody's Investors Service rated Viasystems, Inc.'s (Viasystems) $50 million senior secured add-on notes in-line with the company's existing $550 million senior secured notes, due 2019, at B1. Moody's also assigned a SGL rating of SGL-3 indicating adequate liquidity. As part of the rating action, Moody's revised the rating outlook to negative from stable, and affirmed Viasystems' B2 corporate family rating ("CFR") and B2-PD probability of default rating.

RATINGS RATIONALE

The change in the outlook reflects Moody's view that Viasystems' latest debt raise of $50 million additional senior secured notes increases the company's credit risk, with adjusted pro forma leverage of about 5x for year-end 2013. Although Moody's believes the proceeds from the additional senior secured notes will be a necessary source of liquidity while the company implements ongoing cost realignment measures and rebuilds its production capacity, this incremental debt indicates a weakening in the company's credit metrics that could foreshadow further cash challenges if the company cannot achieve material revenue growth and cost reductions in 2014. Also supporting the negative outlook, Moody's notes the deterioration of Viasystems' adjusted operating margin, from 6.9% at year-end 2011 to 2.5% at year-end 2013. Moody's expects extremely modest margin expansion by the end of 2014 to about 3% as the company absorbs some production ramping costs. Moody's also expects the company's adjusted leverage to be about 4.6x by year-end 2014 due to slight expected EBITDA growth. The negative outlook could be stabilized if the company demonstrates revenue growth, substantial operating margin improvement to at least 5%, and produces positive free cash flow to pay down adjusted leverage to reach 4x.

The B1 rating assigned to the $600 million senior secured notes is based on the probability of default of the company, which is B2-PD, as well as the loss given default of the debt instrument, which is LGD-3 (42%).The rating is driven by the senior secured notes' pari passu position (secured by all domestic assets) relative to the senior secured ABL revolver, and supported by trade payables which occupy a relatively junior position. Moody's notes that if the company raises additional senior secured debt, the ratings on the senior secured debt will be under downward pressure.

Ratings affirmed/ ratings assigned / outlook revised:

Rating Outlook revised to Negative from Stable

SGL assigned at SGL-3

Senior Secured Notes rating assigned at B1 (LGD-3 42%)

Senior Secured Notes rating affirmed at B1 (LGD-3 42%)

CFR affirmed at B2

PDR affirmed at B2-PD

What Could Change the Rating - Up

As the company works to stabilize its cost structure, an upgrade is unlikely in the near term. Ratings could be upgraded as a result of significant revenue and EBITDA expansion which leads to significantly reducing leverage below 2.5x. Any upgrade anticipates improvement in operating margins to above 10% due to increased contribution from the quick-turn, low volume unit, which has higher gross margins and lower SG&A. Ratings could also be raised if better working capital management and future decreased capital expenditure requirements lead to higher cash flows and improved free cash flow stability.

What Could Change the Rating - Down

Ratings could be downgraded if Viasystems suffers further revenue deterioration, pricing pressures, market share loss or operational missteps. Ratings may also be downgraded if operating margins do not rebound to historic levels above 6%. Inability to generate positive free cash flow or to reduce leverage below 4.5x total adjusted debt to EBITDA will also pressure the rating.

For ratings drivers and additional analysis, please refer to Viasystem's credit opinion on www.moodys.com.

The principal methodology used in this rating was Global Distribution & Supply Chain Services published in November 2011. 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.

Headquartered in St. Louis, Missouri, Viasystems, Inc. is a wholly-owned subsidiary of Viasystems Group, Inc. The company is a provider of complex multi-layer printed circuit boards (PCB) and electro-mechanical solutions. Revenue for the twelve months ended December 31, 2013 was $1.2 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gerald Granovsky
Senior Vice President
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

Robert P Jankowitz
Associate Managing Director
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 Rates Viasystems' Add-on Notes B1; Revises Rating Outlook to Negative from Stable; B2 CFR affirmed
No Related Data.
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