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Rating Action:

Moody's changes outlook on Wittur's ratings to negative; affirms B3 CFR

23 Apr 2020

Frankfurt am Main, April 23, 2020 -- 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 €530 million senior secured first lien Term Loan B and €90 million senior secured first lien revolving credit facility (RCF), and the Caa2 rating on the €240 million second lien term loan, issued by Wittur Holding GmbH, a direct subsidiary of the group. The outlook on all ratings has been changed to negative from stable.

"The outlook change to negative was prompted by our expectation that Wittur's operating performance and credit metrics will significantly weaken this year following the coronavirus outbreak, which will stifle construction activity and constrain Wittur's manufacturing capabilities", says Goetz Grossmann, Moody's lead analyst for Wittur. "This is balanced to some degree by our still-adequate liquidity assessment for Wittur and its solid business profile, which supports the rating affirmation."

RATINGS RATIONALE

The rating action follows the worldwide fast spreading coronavirus, which Moody's expects to slow down construction activity and significantly constrain Wittur's operating performance this year. The rating agency forecasts that Wittur's revenues will shrink by more than 10% in 2020, its profitability to weaken and Moody's-adjusted free cash flow to remain clearly negative (€49 million negative in 2019). Given Wittur's lack of recurring maintenance activities, the negative impact on its business should be more pronounced vis-a-vis its major customers, which also revised their outlooks recently. For instance, elevator manufacturers KONE Corporation and Schindler Group expect their revenues to decrease by up to 10% this year, depending on the final implications of the virus spreading for equipment installations and maintenance activities, as well as the strength of a recovery expected fom the second half of 2020.

Key credit metrics of Wittur, which already deteriorated last year with rising debt levels and weakening cash flows (partly due to no-recurring events), will likely remain outside of Moody's guidance for a B3 rating over the next 12-18 months. At the same time, an expected demand recovery and improvement in Wittur's performance during 2021 will depend on when the virus spreading will be contained, national lockdowns lifted and the company be able to return to normal production levels.

That said, Moody's expects Wittur to take mitigating actions in response to the current demand weakness, including cost cutting initiatives, suspend or scale down certain strategic projects, reduce capital expenditures or make use of state-support schemes (e.g. short-time work), as appropriate. While such measures could help soften the expected profitability erosion over the next few quarters, and recognizing Wittur's fairly flexible cost base (around 2/3 of cost deemed variable by management), however, earnings will likely not recover to 2019 levels until the end of 2021. Leverage as adjusted by Moody's will therefore remain very high for the B3 rating (maximum 7.5x gross debt/EBITDA) and exert immediate downward pressure on the rating in case of a more material underperformance over the next 12-18 months.

The rating affirmation is supported by Moody's view that Wittur should be able to retain an adequate liquidity profile, which should assist it to weather the upcoming challenging quarters of negative FCF. At the end of 2019, the group had cash and cash equivalents of €70 million and access to it committed and largely undrawn €90 million RCF.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The manufacturing sector has been one of the sectors strongly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Wittur's credit profile, including its exposure to the cyclical construction sector, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Wittur remains vulnerable to the outbreak continuing to spread.

ESG CONSIDERATIONS

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Wittur of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

OUTLOOK

The negative outlook indicates Wittur's weakening rating positioning during 2020 and the significant uncertainty attached to the ongoing spreading of the coronavirus, which could have more negative implications for the group as currently anticipated. It particularly reflects increasing downgrade risk if Wittur's liquidity were to swiftly deteriorate, including due to more negative free flow generation than currently projected during 2020 or beyond.

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

Moody's could downgrade Wittur, if its (1) leverage were to sustainably exceed 7.5x Moody's-adjusted debt/EBITDA, (2) Moody's-adjusted free cash flow remained consistently negative, (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 2019, Wittur generated €809 million in sales and company-adjusted EBITDA of €121 million (15% 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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

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.

Goetz Grossmann, CFA
Vice President - Senior 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.
© 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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