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Rating Action:

Moody's affirms Adient's ratings, CFR at B2; outlook remains negative

09 Mar 2020

Approximately $3.6 billion of rated obligations affected

New York, March 09, 2020 -- Moody's Investors Service ("Moody's") affirmed the ratings of Adient Global Holdings Ltd. ("Adient") including Corporate Family Rating (CFR) and Probability of Default Rating at B2, and B2-PD; senior unsecured ratings at B3; and Adient US LLC's senior secured ratings at Ba2. The rating outlook remains negative.

The following ratings were affirmed:

Adient Global Holdings Ltd:

Corporate Family Rating, at B2;

Probability of Default, at B2-PD;

€1.0 billion 3.50% unsecured notes due 2024, at B3 (LGD5);

$900 million 4.875% unsecured notes due 2026, at B3 (LGD5).

Adient US LLC:

$800 million senior secured term loan due 2024, Ba2 (LGD2);

$800 million 7% senior first lien notes due 2026, Ba2 (LGD2).

Rating outlooks:

Adient Global Holdings Ltd; negative

Adient US LLC: negative

The $1.25 billion asset based revolving credit facility is unrated by Moody's.

RATINGS RATIONALE

Adient's ratings reflect the company's high financial leverage and the expected lower profits and cash flow because of declines in global automotive production through 2020, which is expected to be exacerbated by the consumer demand and automotive supply chain disruptions caused by the COVID-19 virus. Debt/EBITDA is estimated at 7.9x (inclusive of Moody's adjustments and not including equity income) for last twelve months ending December 31, 2019 and EBITA/interest at 0.6x. Adient improved EBITA margin performance for the first fiscal quarter ending December of 1.6% compared to -0.9% in prior year quarter even as global automotive production continued to decline. While this result demonstrates the progress Adient continues to make on its operational turnaround, margins remain weak and sustained operational improvement needs to accelerate through fiscal 2020.

The company's pace of performance improvement will be interrupted by the impact of the COVID-19 virus on manufacturing operations and demand in Asia in the second fiscal quarter, and broadly lower auto demand globally. This will result in weakened credit metrics over the coming quarters. Moody's estimates that negative free cash flow generation could run as high as $200 million in fiscal 2020.

Positively, Adient's adequate liquidity profile includes $965 million of cash at December 31, 2019, and the company recently announced agreements to sell certain assets which are expected to bring in cash proceeds, estimated at $574 million by fiscal year-end September 30, 2020. These asset sales are strong credit positives to Adient's liquidity profile, and Moody's believes this additional cash adds protection to Adient, given current weak industry conditions.

Adient is expected to maintain its strong competitive position which includes being a leading global supplier of automotive seating and related components, strong regional and customer diversification, longstanding customer relationships and the earnings from unconsolidated affiliates, albeit weakening. These positives are balanced with the company's high leverage, operational challenges, negative free cash flow, and cyclical automotive end-market demand.

The negative outlook reflects the challenges of ongoing global automotive production declines exacerbated by the impact of the COVID-19 virus on automotive demand and supply chain disruptions.

Adient's SGL-3 Speculative Grade Liquidity rating reflects the expectation of adequate liquidity over the next 12-15 months. Positively, liquidity is supported by cash on hand of $965 million and availability of about $1.1 billion under the $1.25 billion asset based revolving credit facility. The facility matures in May 2024. The financial covenant under the ABL facility is a springing fixed charge coverage test, triggered when availability falls to 10%. The senior secured term loan does not have financial maintenance covenants. Given the company's strong cash position, the ABL covenant is not expected to be triggered because of drawings over the next 12-15 months. Also positively impacting Adient's liquidity profile are expected proceeds of $574 million by fiscal year-end September 2020 from the announced agreements to sell certain assets.

Offsetting the relatively sizable cash position is the risk is Moody's estimate that Adient could generate negative free cash flow as high as $200 million, given the expectation of going declines in global automotive production in 2020 and additional headwinds from manufacturing and supply chain disruptions related to the COVID-19 virus. Yet, this estimate is uncertain given the risk of further spreading of the COVID-19 virus and the uncertainty of the consumer's return to automotive show rooms.

Adient enters into supply chain financing programs receivable transfer programs to sell accounts receivable without recourse to third-party financial institutions. Amounts under these programs were $165 million as of September 30, 2019. While not expected, if the company is unable to maintain and extend these receivable programs, additional borrowings under the revolving credit facility would be required to meet liquidity needs.

The ratings could be downgraded with the expectation of material deterioration of automotive demand affecting cash flow, the loss of or meaningful decline in volume from a major customer, or if the company is unable to demonstrate progress improving operating performance over the next 12 months. A deterioration in liquidity or if Moody's expects weak free cash flow performance to worsen could also lead to a downgrade.

An upgrade is unlikely over the next 12 months. However, the ratings could be upgraded if the company demonstrates improved operating performance that leads to an expectation of positive free cash flow generation and a reduction in debt-to-EBITDA below 5x (excluding consideration for equity income from joint ventures). Progress on improving margins and free cash flow, along with solid liquidity could lead to a stable rating outlook.

The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Adient plc, the publicly-traded parent of Adient Global Holdings Ltd., is one of the world's largest automotive seating suppliers with a leading market position in the Americas, Europe and China, and has longstanding relationships with the largest global original equipment manufacturers (OEMs) in the automotive space. Adient's automotive seating solutions include complete seating systems, frames, mechanisms, foam, head restraints, armrests, trim covers and fabrics. Adient also participates in the automotive seating and interiors market through its joint ventures in China. Revenues for the LTM period ending December 31, 2019 were $16.3 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Timothy L. Harrod
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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