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Rating Action:

Moody's affirms Commercial Vehicle Group's B2 CFR, assigns B2 senior secured ratings; outlook stable

29 Jun 2021

New York, June 29, 2021 -- Moody's Investors Service, ("Moody's") affirmed Commercial Vehicle Group, Inc. (CVG)'s corporate family rating (CFR) at B2 and the probability of default rating (PDR) at B2-PD, assigned a B2 rating to its new senior secured first lien credit facilities and withdrew the B2 rating on the 1st lien bank credit facility due April 2023. The outlook is stable.

The rating actions reflect the leverage neutral nature of CVG's refinancing with debt at the same class. Proceeds from the new bank term loan and some cash repaid in full the 1st lien bank credit facility due 2023. The new capital structure, which closed end of April 2021, extends debt maturities and also enhances free cash flow generation by reducing cash interest expense by approximately $12 million per year.

The following rating actions were taken:

Affirmations:

..Issuer: Commercial Vehicle Group, Inc.

.... Corporate Family Rating, Affirmed B2

.... Probability of Default Rating, Affirmed B2-PD

Assignments:

..Issuer: Commercial Vehicle Group, Inc.

....Senior Secured 1st Lien Revolving Credit Facility, Assigned B2 (LGD3)

....Senior Secured 1st Lien Term Loan A, Assigned B2 (LGD3)

Withdrawals:

..Issuer: Commercial Vehicle Group, Inc.

....Senior Secured 1st Lien Term Loan, Withdrawn at B2 (LGD4)

Outlook Actions:

..Issuer: Commercial Vehicle Group, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

CVG's ratings reflect its competitive position as an OEM supplier to builders of commercial trucks (Class 5-8) of seating systems, trim and wire harnesses, and what is expected to be an improving build rate of new trucks into next year. Moody's expects CVG's revenues to increase by at least 15% in 2021, following a 20% decline in 2020, with significant recovery in North American truck build.

Given the highly cyclical nature of truck builds, CVG has maintained a low amount of funded debt with generally moderate leverage compared to other issuers at the same rating level. Despite supply chain and inflation pressures, CVG's end markets should be favorable enough for profits to produce Moody's-adjusted debt to EBITDA improving to near a 3x level in 2021.

However, as CVG diversifies its exposure away from the trucking industry, CVG could become aggressive with debt financed acquisitions to grow its warehouse automation business or even to tolerate higher leverage as its revenue sources become less cyclical.

CVG has undertaken a strategic shift as management looks to add business with less cyclical revenue than new-build commercial trucks, and also with high long-term growth prospects. These include a build-out of its warehouse automation systems which the company entered through its late-2019 acquisition of First Source Electronics, and also to expand into last mile delivery vehicles.

Favorable trends in e-commerce support the growth in these areas. However, competition for warehouse automation services is expected to be intense with many larger, traditional manufacturing companies having entered the space. Furthermore, this new strategic focus is unprecedented for CVG so there is meaningful execution risk and the need to balance investments to sustain the position as a truck supplier while growing a separate business line.

CVG also operates with relative modest scale, and customer and geographic concentrations in its core business. Although CVG has reduced its exposure to the most cyclical heavy truck production, it still remains significant at approximately 35%.

Near term, CVG will have to make investments to meet production growth, through working capital usage and capital expenditures. This will pressure on free cash flow. Further, CVG is also expected to face headwinds from chassis shortages and inflationary pressures associated with labor and freight in 2021.

The stable outlook reflects Moody's view that CVG will maintain moderate leverage with debt/EBITDA around 3x along with adequate liquidity with positive free cash flow as the company continues its ongoing shift to diversify away from its core trucking business.

CVG's SGL-3 liquidity rating reflects Moody's expectation for an adequate liquidity from cash of $38 million at the end of March 2021 (although a substantial portion is outside the US) and modestly positive free cash flow. In the new bank credit facility there is a more onerous mandatory amortization requirement. CVG has a $125 million senior secured revolver, which is expected to fund occasional seasonal working capital needs. Moody's anticipates that the company will maintain solid cushion with its leverage covenant and minimum fixed charge coverage ratio covenant.

The B2 rating of the new senior secured credit facilities is in line with the CFR in that all of the debt and the majority of the liability claims are from the senior secured debt. In the refinancing, CVG replaced its ABL facility with a secured bank revolver. The B2 rating on the secured credit facilities reflects a one notch override down of the outcome of the Loss Given Default model as Moody's anticipates potential for additional borrowings for working capital, internal growth projects and working capital, and those borrowings would also be secured.

ESG CONSIDERATIONS

The company's role in the commercial vehicle industry exposes it to environmental risks arising from increasing regulations on carbon emissions, particularly as it relates to its end customers. Moody's views CVG's risk to be manageable with certain opportunities in its electrical systems segment to contribute to trends toward longer-term electrification of commercial vehicles.

As a publicly traded company that has maintained a relatively low amount of funded debt due to exposure to highly cyclical class 8 commercial truck market, Moody's views CVG's governance risk as low.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RAT INGS

The ratings could be upgraded if CVG demonstrates ability to withstand inherent volatility in its primary end markets, while profitably expanding its presence in growing business areas, specifically warehouse automation. This can be demonstrated by maintaining EBITA margins in the high-single digit range and debt/EBITDA below 3.5x, along with strong liquidity.

The ratings could be downgraded if CVG's liquidity position deteriorates from an inability to generate positive free cash flow or if Moody's expects debt/EBITDA to be sustained above 5x.

The principal methodology used in these ratings was Automotive Suppliers published in May 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276105. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CVG is a global provider of components and assemblies into two primary end markets -- the global vehicle market and the U.S. technology integrator markets. The company provides components and assemblies to global vehicle companies to build original equipment and provides aftermarket products for fleet owners. The company also provides mechanical assemblies to warehouse automation integrators and to U.S. military technology integrators. Revenue for the twelve months ending March 2021 was $776 million.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Mike Cavanagh
Asst Vice President - Analyst
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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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