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Rating Action:

Moody's confirms Adient's ratings, CFR at B2, and assigns Ba3 to new senior secured note; negative outlook

20 Apr 2020

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

No Related Data.
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