Approximately $4.2 billion of Rated Debt Affected
New York, April 20, 2020 -- Moody's Investors Service, (" Moody's ") confirmed the ratings of
Adient Global Holdings Ltd. (Adient) including Corporate Family
Rating (CFR) at B2, the Probability of Default Rating at B2-PD,
and the senior unsecured ratings at B3, Adient US LLC's senior secured
facilities at Ba3; and assigned a Ba3 rating to Adient US LLC's
new senior secured note. The Speculative Grade Liquidity Rating
is SGL-2. The rating outlook is negative. This action
concludes the review for downgrade initiated on March 25, 2020.
Adient recently announced the issuance of $500 million in senior
secured notes by its subsidiary, Adient US LLC, which will
rank pari passu with its existing senior secured debt. The net
proceeds of the notes will be used for general corporate purposes and
is an important step to support Adient's liquidity profile.
The following rating actions were taken:
Ratings Confirmed:
..Issuer: Adient Global Holdings Ltd
.... Corporate Family Rating, at B2
.... Probability of Default Rating,
at B2-PD
....Senior Unsecured Regular Bond/Debenture,
at B3 (LGD5)
..Issuer: Adient US LLC
....Senior Secured Bank Credit Facility,
at Ba3 (LGD2)
....Senior Secured Regular Bond/Debenture,
at Ba3 (LGD2)
Outlook Actions:
..Issuer: Adient Global Holdings Ltd
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Adient US LLC
....Outlook, Changed To Negative From
Rating Under Review
Speculative Grade Liquidity Rating
..Issuer: Adient Global Holdings Ltd
.... Speculative Grade Liquidity Rating,
remains SGL-2
Rating assigned:
..Issuer: Adient US LLC
....New Senior Secured Regular Bond/Debenture,
at Ba3 (LGD2)
The $1.25 billion asset based revolving credit facility
is unrated by Moody's.
RATINGS RATIONALE
Adient's B2 CFR reflects the company's high financial leverage and the
expected lower profits and cash flow because of declines driven by lower
consumer automotive demand and automotive supply chain disruptions caused
by the global coronavirus pandemic. Adient's 7.9x
Debt/EBITDA (inclusive of Moody's adjustments and not including equity
income) and 0.6x EBITA/interest for last twelve months ending December
31, 2019 are expected to deteriorate further through calendar year
2020.
Partially mitigating this expectation is Adient's good liquidity
profile which will be further bolstered from the net proceeds from the
$500 million note issuance. The borrowing base availability
under Adient's $1.25 billion asset based revolving
credit facility will decline over the coming months as the receivables
are collected, and the note proceeds will bridge liquidity until
industry conditions recover, potentially through the back half of
calendar year 2020.
Adient should maintain its strong competitive position as a leading global
supplier of automotive seating and related components, with regional
and customer diversification, longstanding customer relationships
and the earnings from its unconsolidated affiliates, albeit weakening.
These positives are balanced with the company's high leverage, operational
challenges, negative free cash flow, and cyclical automotive
end-market demand.
The negative outlook reflects Adient's ongoing weak credit metrics
and the uncertainty around the timing of a recovery in global automotive
production, and the steady state production level following the
impact of the coronavirus pandemic.
Adient's SGL-2 Speculative Grade Liquidity rating reflects the
expectation of good liquidity through calendar year 2020 supported by
strong cash balances. On March 26, 2020 Adient borrowed $825
million under the asset based revolving credit facility ('ABL'
expiring May 2024), increasing cash to $1.79 billion
pro forma for December 31, 2019 and reducing ABL availability to
$175 million. Cash is somewhat lower at this time because
of the negative cash flow to date.
The $500 million note offering will add cash to bridge expected
reductions in borrowing base availability under the ABL over the coming
months, which could require some of the drawings to be repaid.
Automotive production has essentially ceased in North America and Europe
and is not expected to resume until early/mid May 2020, at which
point receivables would increase, creating borrowing base capacity.
Also positively impacting Adient's liquidity are expected proceeds of
$574 million by fiscal year-end September 2020 from the
announced agreements to sell certain assets.
The financial covenant under the ABL facility is a springing fixed charge
coverage test, triggered when availability falls to greater of:
10% of the lesser of the commitment amount and the borrowing base;
or $100 million. The senior secured term loan does not have
financial maintenance covenants. With the recent draw under the
ABL and the company's strong cash position, the ABL covenant is
not expected to be triggered through 2020.
Offsetting the relatively sizable cash position is the risk is Moody's
estimate that Adient could generate negative free cash flow of at least
$200 million for fiscal year 2020, given the recent suspension
of operations at OEM manufacturing facilities around the world and additional
headwinds from supply chain disruptions related to the coronavirus.
Yet, this estimate is uncertain given the risk of further spreading
of the virus and the uncertainty of the consumer's return to automotive
show rooms.
Adient enters into supply chain financing programs to sell accounts receivable
without recourse to third-party financial institutions.
Amounts under these programs were $165 million as of September
30, 2019. While not expected, if the company is unable
to maintain and extend these receivable programs, additional borrowings
under the revolving credit facility would be required to meet liquidity
needs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded with the expectation of material deterioration
of automotive demand affecting cash flow, the loss of or meaningful
decline in volume from a major customer, or if the company is unable
to demonstrate progress improving operating performance over the next
12 months. A deterioration in liquidity or if Moody's expects weak
free cash flow performance to worsen could also lead to a downgrade.
An upgrade is unlikely over the next 12 months. However,
the ratings could be upgraded if the company demonstrates improved operating
performance that leads to an expectation of positive free cash flow generation
and a reduction in debt-to-EBITDA below 5x (excluding consideration
for equity income from joint ventures). Progress on improving margins
and free cash flow, along with solid liquidity could lead to a stable
rating outlook.
Adient plc, the publicly-traded parent of Adient Global Holdings
Ltd., is one of the world's largest automotive seating suppliers
with a leading market position in the Americas, Europe and China,
and has longstanding relationships with the largest global original equipment
manufacturers (OEMs) in the automotive space. Adient's automotive
seating solutions include complete seating systems, frames,
mechanisms, foam, head restraints, armrests, trim
covers and fabrics. Adient also participates in the automotive
seating and interiors market through its joint ventures in China.
Revenues for the LTM period ending December 31, 2019 were $16.3
billion.
The principal methodology used in these ratings was Automotive Supplier
Methodology published in January 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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/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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU 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.
Timothy L. Harrod
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
