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Rating Action:

Moody's confirms Visteon ratings, senior secured and CFR at Ba3; stable outlook

22 Jun 2020

Approximately $750 million of rated debt affected

New York, June 22, 2020 -- Moody's Investors Service ("Moody's") confirmed the ratings of Visteon Corporation's (Visteon) including the Corporate Family Rating (CFR) and Probability of Default Rating, at Ba3 and Ba3-PD, respectively, and the senior secured credit facilities at Ba3. The Speculative Grade Liquidity Rating remains SGL-1. The outlook is stable. This action concludes the review for downgrade initiated on March 26, 2020.

Ratings Confirmed:

..Issuer: Visteon Corporation

.... Corporate Family Rating, at Ba3

.... Probability of Default Rating, at Ba3-PD

....Senior Secured Bank Credit Facility, at Ba3 (LGD3)

Outlook Action:

..Issuer: Visteon Corporation

....Outlook, Changed To Stable from Rating Under Review

RATINGS RATIONALE

Visteon's ratings reflect the company's strong position as a global supplier to the auto industry of digital instrument clusters, digital cockpit displays and other vehicle electronics, with a strong backlog of new business that should evident in revenue over the 2020/2021 period. Visteon operates in diverse geographic end-markets, with 46% of revenues in Asia, 33% in Europe, and 27% in the Americas ( before 6% intercompany eliminations). Visteon high Asian exposure negatively affected profits early in 2020, but recovery of plant operations there should aid results going forward and somewhat offset the impact of the coronavirus pandemic plant closures in North America and Europe. Europe and North America auto production facilities are restarting. Visteon's concentration outside of North American should aid recovery of profits going forward as North America was the last region to start plants back up.

Further, Visteon entered the downturn with a solid book of business as the company began the year with $6.1 billion in life time business booked in 2019. The backlog is a management estimate, however, of: 1) about 30% share of the vehicle cluster market, and 2) display wins of $800 million in the first quarter of 2022, which is a company record. Still, the backlog should somewhat mitigate the lower global automotive production expected in 2020 and generate solid revenue growth in 2021. Moody's notes that despite the new product launch headwinds Visteon experienced in 2019, the company achieved its full-year revenue guidance in 2019 largely supported by its backlog of new business.

Visteon's debt/EBITDA as of March 31, 2020 was elevated at 6.3x (after Moody's standard adjustments) and includes the company's $400 million of borrowings under the revolving credit agreement. Pro forma debt/EBITDA to exclude the revolver drawdown was 4.2x. Visteon's debt leverage will deteriorate through 2020 with the impact from temporary closures of automotive customer manufacturing operations in North America and Europe. Management actions to help mitigate lost volumes from the impact of the coronavirus pandemic include capital expenditure reductions, temporary salary reductions, reduced discretionary spending, improved working capital management, and additional organizational restructuring actions, but not likely sufficient to offset the impact of the volume decline. Nonetheless, with recovering industry conditions expected in 2021 and debt paydown from available cash, Moody's expect Visteon's debt leverage will recover to pre coronavirus pandemic levels by the back half 2021.

The stable outlook reflects Moody's belief that Visteon's strong backlog of new business wins will add to the expected gradual recovery in the automotive industry, although there is concern about potential interruption from a second wave of infection rates. Moody's also believes the launch issues of 2019 are resolved. Visteon has very good liquidity, which should support operations under these circumstances.

Visteon's SGL-1 Speculative Grade Liquidity Rating reflects very good liquidity with global unrestricted cash of $822 million, as of March 31, 2020. Visteon's $400 million revolving credit facility was fully drawn as of March 31, 2020, however, and expected to remain outstanding until year-end 2020 or into 2021 until industry conditions stabilize. Moody's now expects free cash flow generation in 2020 in the negative $150 million range due to a more gradual recovery of automotive production levels. The revolving credit facility includes a net leverage ratio test, and Visteon is expected to be in compliance through 2020.

Visteon has a complex organizational structure includes consolidated overseas joint-venture interests that contribute a significant amount of the company's consolidated operating profits. The secured debt rating of Ba3 on the US issued debt reflects Moody's belief that the recovery value for the U.S.-issued debt from its diverse global operations would not be materially different the overall family recovery.

Automotive suppliers face material credit risk from carbon transition. Automotive suppliers are coming under increasing pressure to accelerate the electrification of their vehicles, requiring large long-term investments while technologies are evolving. These efforts coincide with a period in which green house gas emissions from the transportation sector rose faster than the overall growth of emissions. Visteon's products are agnostic to vehicle powertrain. Yet, the company's digital and electronic offerings are likely in line with vehicle electrification trends and the need for more interactive driver data in the vehicle.

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

The rating could be upgraded following a demonstrated ability to deliver improved operating performance and positive free cash flow resulting in EBITA margin (inclusive of restructuring charges) above 8% EBITA/interest above 4x and Debt/EBITDA approaching 2.5x. Evidence that the cash repatriation strategies support strong debt service will also be an important consideration for any upgrade.

The ratings could be downgraded with Moody's expectation of EBITA/interest being sustained below 2.5x or Debt/EBITDA expected to be sustained above 4x by the second half of 2021. Deteriorating liquidity could also lead to a rating downgrade.

The principal methodology used in these ratings was the 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.

Visteon Corporation, headquartered in Van Buren Township, Michigan, is a global automotive supplier that designs, engineers and manufactures cockpit electronics and connected car solutions for the world's major vehicle manufacturing companies. Visteon has an international network of manufacturing operations, technical centers and joint venture operations. Visteon had sales of $2.9 billion in for the LTM period ending March 31, 2020.

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.

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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