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Rating Action:

Moody's affirms Wittur's B3 CFR; outlook negative

01 Sep 2021

Frankfurt am Main, September 01, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the B3 corporate family rating (CFR) and B3-PD probability of default rating (PDR) of German elevator components manufacturer Wittur International Holding GmbH ("Wittur" or "group"). Moody's also affirmed the instrument ratings on the group's debt facilities, including the B2 ratings on the €565 million backed senior secured first-lien term loan B and €90 million backed senior secured first-lien revolving credit facility (RCF), and the Caa2 rating on the €240 million backed senior secured second lien term loan, issued by Wittur Holding GmbH, a direct subsidiary of the group. The outlook on all ratings remains negative.

RATINGS RATIONALE

RATIONALE FOR THE NEGATIVE OUTLOOK

The maintenance of the negative outlook primarily reflects Wittur's very high financial leverage of 11.3x Moody's adjusted debt/EBITDA as of last twelve months ended June 2021 (9.4x excluding one - off items), which clearly exceeds the guidance for a B3 rating, and Moody's concerns about the speed of Wittur's deleveraging to a more sustainable level in combination with returning to at least break-even free cash flow (FCF) generation in the next 12-18 months. During the first six months of 2021 the company's EBITDA (as adjusted by Wittur) declined by around 7% due to the headwind from higher raw material prices, which can only be passed on to end-customers with a delay of several months. As a result, the company reported roughly €22 million cumulative negative FCF during the period (as defined and adjusted by Moody's, i.e. including interest paid). The FCF generation was hit by lower profitability, high exceptional items related to restructuring and ERP system roll out, and a seasonal build-up of working capital in the first half of the year, which Moody's expects will party reverse by year-end 2021.

Moody's expects that Wittur's sales and EBITDA in the second half of 2021 will continue to remain negatively impacted by raw material price volatility, because of the contractual time lag to pass on price increases to customers (around 3 months). Furthermore, the earnings and cash flow will be burdened by high exceptional items related to the restructuring and ERP rollout. This will lead to a very high Moody's adjusted Debt / EBITDA of around 12x and negative FCF of around €25-€30 million in 2021.

The agency sees the risk that credit metrics will remain below the requirements for a B3 rating in the next 12-18 months. The deleveraging depends on a substantial reduction of exceptional items, which on average amounted to around €30 million per annum in the 2018 -- 2020 period and accounted for substantial portion of company adjusted EBITDA (30%), and the execution of efficiency and cost structure improvements. Moody's recognizes that Wittur aims to substantially reduce exceptional items from 2022 onwards, but also takes into account the recent track record with high recurring exceptional costs and aggressive financial policy due to the gradual increase in gross debt in the past.

RATIONALE FOR THE RATINGS AFFIRMATION

The affirmation of Wittur's ratings primarily reflects the company's adequate liquidity position with low refinancing risk in the medium term, given that it will not face meaningful debt maturities before 2026. As of the end of June 2021, the company operated with €76 million of cash on the balance sheet, including an undrawn €80 million of RCF. Moody's calculates that Wittur would need to face a further substantial cash burn and substantial EBITDA decline to breach the springing covenant in the revolving facility agreement, which is tested when revolving facility drawn loans less cash and cash equivalents exceed 40% of revolving facility commitments. As such, the agency considers it unlikely that Wittur will face issues with the covenant compliance in the next 12-18 months.

Moody's positively notes Wittur's scale advantage versus direct peers given its clear number one position globally, which enables the company to take advantage of the outsourcing trend of components by elevator producers, which also seek to diversify their supplier base.

The rating agency also recognizes that Wittur has recently won several contracts with large elevator manufacturers and is gaining market share with small and medium-sized customers. Moody's expects Wittur's revenues will exceed 2019 pre-pandemic levels by low single digits in percentage terms in 2021, supported by the economic recovery and market share gains, leading to further high single digit revenue growth in 2022. In addition, Wittur has implemented most of its planned restructuring program in the first half of 2021 and continues to rollout the ERP system. Leaner cost structure and benefits from ERP project could provide an uplift to EBITDA generation in 2022, supporting deleveraging.

ENVIRONMENTAL SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS

The governance issues Moody's deems most relevant for Wittur comprise of relatively frequent changes in its top management in recent years and a fairly poor track record of meeting its forecasts. Another factor is its very aggressive financial policy, illustrated by repeated incremental debt issuances during the last five years, resulting in a consistently highly levered capital structure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could downgrade Wittur, if its (1) fails to bring leverage towards 7.5x Moody's-adjusted debt/EBITDA in 2022 and clearly below 7.5x in 2023, (2) fails to return to at least break-even FCF generation (as defined and adjusted by Moody's, i.e. including interest paid) in 2022 and beyond, (3) liquidity were to deteriorate.

An upgrade would require Wittur to (1) deleverage to below 6.5x Moody's-adjusted debt/EBITDA, (2) improve free cash flow generation with Moody's-adjusted FCF/debt ratios strengthening towards the mid-single-digits, whilst maintaining a solid liquidity profile.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

PROFILE

Wittur International Holding GmbH is as a private-equity-owned manufacturer of elevator components, based in Germany. Wittur produces and sells elevator components such as automatic elevator doors, lift cars, safety components, drives, elevator frames and complete elevators to customers that include major multi-national corporations as well as independent companies. In 2020, Wittur generated €768 million in sales and company-adjusted EBITDA of €108 million (14% margin).

Wittur is owned by funds advised by Bain Capital Europe Fund IV L.P. and Canada's Public Sector Pension Investment Board ("PSP Investments"), which acquired a 32% stake in Wittur from Bain Capital in March 2019.

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 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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Svitlana Ukrayinets
Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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