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Rating Action:

Moody's assigns a Ba2 rating to Faurecia's planned notes issue

02 Nov 2021

Frankfurt am Main, November 02, 2021 -- Moody's Investors Service ("Moody's") has today assigned a Ba2 rating to Faurecia's planned €1.0 billion sustainability-linked senior unsecured notes due 2027.

The instrument rating will be in line with Faurecia's Ba2 corporate family rating (CFR) and in line with the ratings of its other outstanding bond ratings given its equal ranking with all other existing senior unsecured indebtedness of the issuer. The outlook on all ratings is negative.

The proceeds will mainly be used to fund part of the cash portion of the purchase price for Hella GmbH & Co. KGaA (Hella, Baa1 ratings under review) acquisition.

RATINGS RATIONALE

On August 14, 2021, Faurecia announced that it has reached an agreement with the Family pool shareholders of Hella to acquire its 60% stake at a price of €60 per share and to launch a public tender cash offer for the remaining Hella shares at a price of €60 per share paid through a mix of €3.4bn of cash and up to 13.58 million newly issued Faurecia shares. The transaction represents an estimated total enterprise value of €6.7bn for 100% of Hella.

The Ba2 ratings continue to reflect (1) the strong strategic rationale of the transaction with a very good complementarity between Faurecia and Hella from a product, geographical and customer point of view, (2) a relatively low integration risk also to a large extent linked to the limited overlap between the two businesses, (3) the cost control culture of Faurecia that should enable it to generate some cost synergies over time. We also note as positive Faurecia's reiterated commitment to its financial policy of limiting net debt/EBITDA at below 2x and with the ambition to reduce the combined group's leverage to below 1.5x by 2025.

Against these positives, the Ba2 also includes the material financial impact of the transaction on Faurecia's balance sheet with an expected €4.4 billion of debt raised for the financing of the transaction at a point where global auto markets remain challenging because of the accelerated shift towards electrification, supply chain disruptions caused by the semiconductor shortages as well as the general cyclicality and price sensitivity of the auto supplier industry. These risks have also led to profit warning during Q3 2021 from both Faurecia and Hella, albeit the outlook for next year is more favorable.

Moody's positively recognizes an improved business profile of the combined group versus Faurecia's stand-alone positioning with a combined product portfolio that is well equipped to address the future megatrends of the automotive industry which mitigates the temporary high leverage for the current rating level.

LIQUIDITY

The liquidity position of Faurecia will be solid, supported by a healthy cash position pro forma of the closing of the transaction, access to the undrawn revolving credit facilities of both Faurecia and Hella, a manageable maturity profile and the expectation of positive free cash flow generation for the combined group.

Most of the structurally senior debt at Hella might have to be repaid from Hella's high cash position given a change of control clause in the debt documentation. The acquisition debt will rank pari passu with Faurecia's unsecured notes.

RATIONALE FOR THE NEGATIVE OUTLOOK

The negative outlook reflects the risk that Faurecia might not be able to restore a credit profile commensurate with the Ba2 rating within 12 to 18 months from closing of the transaction.

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

Moody's would consider an upgrade to Ba1 should Faurecia sustainably achieve EBITA margins above 6%, it continues to generate positive FCF, indicated by FCF/debt in the low to mid-single digits through the cycle and if the company can manage its leverage ratio to a level below 3.5x debt/EBITDA on a sustainable basis. An upgrade would also require Faurecia to maintain a solid liquidity profile.

However, EBITA margin approaching 4% or recurring negative free cash flow would put downward pressure on the ratings. Moody's would also consider downgrading Faurecia's ratings if its leverage ratio remained around or above 4.5x debt/EBITDA. Likewise, a weakening liquidity profile could result in a downgrade.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating 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.

COMPANY PROFILE

Headquartered in Paris, France, Faurecia is one of the world's largest automotive suppliers for seats, exhaust systems and interiors, with 2020 sales of €14.7 billion. Faurecia is listed on the Paris Stock Exchange, with a free float of 85%. As of 31 March 2021, the remaining 15% was held by Exor (5.5%), Peugeot (3.2%), BPI (2.4%), Dongfeng (2.2%) and other shareholders.

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

This rating is 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_1288235.

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.

Falk Frey
Senior Vice President
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

Anke Rindermann
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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