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I AGREE
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.
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