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Rating Action:

Moody's confirms Commercial Vehicle Group's ratings, including B2 senior secured rating; outlook negative

15 May 2020

New York, May 15, 2020 -- Moody's Investors Service, ("Moody's") confirmed the ratings of Commercial Vehicle Group, Inc. (Commercial Vehicle), including the corporate family rating (CFR) at B2, the senior secured rating at B2, and the Probability of Default Rating (PDR) at B2-PD. The outlook is negative. This action concludes the review for downgrade initiated on March 26, 2020.

The confirmation reflects Moody's expectation for Commercial Vehicle to maintain an adequate liquidity profile and to appropriately right-size its business to manage through a period of significant and sharp decline because of its exposure to highly cyclical truck markets during 2020 before a gradual recovery in its end-markets into 2021. The company's credit metrics will be substantially weakened in 2020 with expectations for debt/EBITDA to be stretched near 8x at year-end and interest coverage well below 1x EBITA/interest expense. Moody's anticipates Commercial Vehicle to generate some positive free cash flow in 2020 through working capital unwind on lower sales volumes and sufficient availability on its asset-based lending facility.

Recovery in the company's primary end-market of North American heavy-duty trucks will be moderate into 2021 as production rates are expected to gradually trend to normal replacement levels. Moody's expects improved top line performance and sustained cost savings should support leverage returning to near 4x debt/EBITDA by the end of 2021. Free cash flow generation, though, will likely be negative in 2021 as the company ramps up working capital investments and returns to more normalized capex levels, so it is essential liquidity is accessible.

The following rating actions were taken:

Confirmations:

..Issuer: Commercial Vehicle Group, Inc.

.... Corporate Family Rating, Confirmed at B2

.... Probability of Default Rating, Confirmed at B2-PD

....Senior Secured Bank Credit Facility, Confirmed at B2 (LGD4)

Outlook Actions:

..Issuer: Commercial Vehicle Group, Inc.

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

Commercial Vehicles' ratings, including the B2 CFR, reflect the company's modest scale, exposure to highly-cyclical end-markets and customer and geographic concentrations in its business. Moody's expects Commercial Vehicle's revenues to fall in 2020 between 30% and 40% with likely greater declines in its primary end-market of North American Class 8 truck production offset partly by less-cyclical, although smaller, aspects of its business, including aftermarket, military and industrial warehouse applications. This level of cyclicality is inherent in Commercial Vehicle's business, but given the company's relatively modest size, the ability to right-size the company's cost structure in a timely manner is critical. Commercial Vehicle has undertaken various initiatives to take costs out and preserve operating flexibility during 2020. However, Moody's expects the company's EBITA margins to decline from 5.4% in 2019 to about 1% in 2020.

Commercial Vehicle maintains a good market position providing seating systems, trim and wire harnesses to major customers primarily in North America. Given the nature of the commercial vehicle industry, the company's sales are concentrated with about 76% of sales to ten customers. Commercial Vehicle has historically demonstrated a disciplined approach to managing its balance sheet with low levels of funded debt and moderate leverage ahead of anticipated cyclical downturns. Moody's expects Commercial Vehicle to maintain this approach following the current recessionary environment.

The negative outlook reflects Moody's view that leverage could be sustained at elevated levels through 2021 should end-market conditions remain depressed or Commercial Vehicle maintains a greater reliance on its asset-based facility should free cash flow generation be pressured.

Commercial Vehicle's SGL-3 liquidity rating reflects Moody's expectation for the company to maintain an adequate liquidity profile through 2021 supported by cash (at least $55 million at the end of March 2020, although a substantial portion is outside the US) and to generate positive free cash flow in the $10 million to $20 million range during 2020, primarily through working capital unwind. Moody's expects the company to maintain moderate availability under its $90 million asset-based facility (ABL) as the company's collateral base will contract over the next several quarters. The company's recently amended covenant package provides relief for the company to weather the expected earnings decline through 2020. Moody's expects the company will maintain sufficient cushion with its leverage covenant through 2021 and will be in compliance with its new $40 million minimum liquidity test. Commercial Vehicle's liquidity remains supportive to cover the $4.4 million in required annual term loan amortization.

ESG CONSIDERATIONS

The company's role in the commercial vehicle industry exposes it to environmental risks arising from increasing regulations on carbon emissions, particularly as it relates to its end customers. Moody's views Commercial Vehicle's risk to be manageable with certain opportunities in its electrical systems segment to contribute to trends toward longer-term electrification of commercial vehicles.

Governance concerns in the near-term reflect the company's early-2020 disclosure of material weaknesses in its internal controls for financial reporting, resulting in the restatement of quarterly financials for 2018 and 2019. Moody's expects the company will act on remediation plans to improve its internal controls and processes.

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

The ratings could be downgraded if Commercial Vehicle's liquidity position deteriorates from an inability to generate positive free cash flow or availability on its asset-based facility is significantly reduced. The expectation for debt/EBITDA to be sustained above 5.5x through 2021 could also pressure the rating.

An upgrade is unlikely in the near-term. However, the ratings could be upgraded if debt/EBITDA is sustained below 3.5x, EBITA/interest expense is maintained above 2.5x and free cash flow to debt is sustained above 10%.

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.

Commercial Vehicle Group, Inc., headquartered in New Albany, Ohio, is a provider of customized products for the commercial vehicle market, including the heavy-duty truck, construction, agricultural, specialty and military transportation markets. The company is an amalgamation of several predecessor organizations whose products include cab structures & assembly, seats & seating systems, trim systems & components, wire harnesses, wipers, controls and mirrors. Revenues for the publicly-traded company for the fiscal year end December 2019 were approximately $901 million.

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

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.

Mike Cavanagh
Analyst
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.
© 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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