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Related Issuers
Rating Action:

Moody's assigns ratings to Grede Holdings, LLC, CFR at B1

14 Mar 2011

Approximately $175 million of rated debt affected

New York, March 14, 2011 -- Moody's Investors Service assigned first time ratings to Grede Holdings, LLC (Grede) - Corporate Family and Probability of Default Ratings at B1. In a related action, Moody's assign a B1 rating to the new senior secured term loan. The proceeds from the senior secured term loan, along with partial funding under a new $90 million senior secured asset based revolving credit facility will be used to finance the strategic acquisition of a Mexican casting business, provide a shareholder distribution, and pay fees and expenses related to the transaction. The asset based revolving credit facility is not rated. The rating outlook is stable.

The following ratings were assigned :

Corporate Family Rating, B1;

Probability of Default, B1;

B1 (LGD3, 49%), for the $175 million senior secured term loan

RATING RATIONALE

The B1 Corporate Family Rating incorporates our expectation of Grede's strong interest coverage and modest debt leverage following the financing of a shareholder distribution and the acquisition of a Mexican casting business. The ratings are balanced by the company's exposure to the cyclical automotive and commercial vehicle industries, and modest size. Grede has been a consolidator of casting assets over the recent years, creating a leading industry participant. Yet, the industry remains fragmented with number of similarly sized domestic casting companies, and importers. Through restructuring actions, such as plant closures and sales of non-core assets over the recent years, the company has produced an improved operating structure more suitable its cyclical industry profile. In addition, management has indicated that they have negotiated improved raw material pass through mechanisms and purchasing processes. The rating also incorporates the risk of integrating recently acquired businesses as industry conditions improve in the North American automotive and commercial vehicle markets.

Grede's revenue base is essentially limited to North American automotive and commercial vehicle tier-one suppliers. As such, while management indicates the company has a diverse customer base with no one customer accounting for more than 8% of total sales, concentrations with end market OEMs are likely higher. Yet, Grede should benefit from recovering industry demand in the North American automotive and commercial vehicle markets. Pro forma for the contemplated transaction, EBIT/interest coverage (including Moody's standard adjustments) for the FYE 2010 approximates 3.5x, and Debt/EBITDA approximates 2.8x.

The stable outlook incorporates Moody's view that Grede's relatively strong credit metrics for the assigned rating should help to mitigate the risks of the company's relatively modest revenue base and the cyclicality of the company's passenger car a commercial vehicle end markets. The company's liquidity profile is expected to provide sufficient operating flexibility to manage through the potential of a more modest general economic recovery than currently expected.

Grede is expected to have an adequate liquidity profile over the near term supported by expected free cash flow generation. Moody's expects that Grede's strong operating margins and modest capital expenditure requirements will support free cash flow generation over the next twelve months. Cash balances following the close of the transaction are expected to be modest. A significant portion of the new $90 million asset based revolving credit facility will be used to partially fund the acquisition and shareholder distribution, leaving a modest amount of availability after consideration for outstanding letters of credit. However, availability should improve with paydowns available free cash flow generated over the near-term. Financial covenants under the term loan are anticipated to include a maximum total leverage test, a minimum interest coverage test, and maximum capital expenditure test. Alternate liquidity is limited as essentially all of the company's assets secure the credit facilities.

An improvement in Grede's rating or outlook is limited by the company's relatively small scale, and the cyclical nature of the casting, automotive, and commercial vehicle markets.

The outlook or rating could be lowered if North American automotive production levels do not recover as anticipated or if the company encounters problems with the integration of recent acquisitions, resulting in substantially weaker profitability or a deterioration in liquidity. If operations were to weaken such that debt to EBITDA were to approach 4x and free cash flow generation was not realized, the company's rating and/or outlook could be lowered. Additional shareholder distributions could also lower the company's rating or outlook.

The principal methodologies used in this rating were Global Automotive Supplier Industry published in January 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Grede Holdings, LLC., headquartered in Southfield, Michigan, is a leading manufacturer of cast, machined and assembled components for the transportation and industrial markets, The company is a full-service supplier with complete design, engineering, machining, and manufacturing capabilities, operating 16 facilities throughout North America with approximately 3,700 employees.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns ratings to Grede Holdings, LLC, CFR at B1
No Related Data.
© 2020 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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