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Rating Action:

Moody's downgrades Cooper-Standard's ratings, CFR at B1 and senior secured to Ba2: outlook negative

10 Oct 2019

Approximately $729 million of rated debt affected

New York, October 10, 2019 -- Moody's Investors Service downgraded Cooper-Standard Automotive Inc.'s (Cooper-Standard) ratings, including Corporate Family Rating (CFR) and Probability of Default Rating to B1 and B1-PD, from Ba3 and Ba3-PD, respectively; senior secured term loan rating to Ba2 from Ba1, senior unsecured note rating to B2 from B1. Cooper-Standard's Speculative Liquidity Rating was downgraded to SGL-3 from SGL-1. The rating outlook remains negative.

The following action was taken:

...Issuer: Cooper-Standard Automotive Inc.

The following ratings were downgraded :

...Corporate Family Rating, to B1 from Ba3;

...Probability of Default, to B1-PD from Ba3-PD;

...$327 million (remaining amount) senior secured term loan due 2023, to Ba2 (LGD2) from Ba1 (LGD2);

...$400 million of senior unsecured notes, to B2 (LGD5) from B1 (LGD4);

...Speculative Grade Liquidity Rating, to SGL-3 from SGL-1;

...Outlook remains Negative

The $210 million asset based revolving credit facility is not rated by Moody's.

RATINGS RATIONALE

The downgrade of Cooper-Standard's ratings incorporate Moody's expectations of a weak second half of 2019 in the company's operating performance with credit metrics remaining weak into 2020. Declines in global automotive production, the delayed ramp up of production on a key North American platform, along with product mix shifts away from long running platforms will weigh on operating performance into 2020. Cooper-Standard's profit margins in the first half of 2019 approximated 2% (inclusive of Moody's standard adjustments) compared to about 8% for the prior year period. While we expect gradual improvement over the coming quarters, as the company executes cost savings and operating efficiency improvement programs, operating results are now anticipated to be below prior expectations. As Cooper-Standard continues to execute a record level of program launches, significant margin improvement will likely be delayed until the latter half of 2020. Further, lost production from the UAW strike at GM's US plant is also expected to drag down profit levels. For the LTM period ending June 30, 2019 Cooper-Standard's Debt/EBITDA approximated 4.4x (inclusive of Moody's adjustments) while EBITA/interest approximated 1.5x, and these measures could weaken further. Favorably, the company maintained $311 million of cash and cash equivalents as of June 30, 2019 which should support operating flexibility.

The negative rating outlook reflects the expectation that Cooper-Standard's credit metrics will remain weak over the intermediate-term, as global automotive industry conditions continue to soften combined with the near-term expected impact on profit levels from the UAW strike at GM's US plants.

Cooper-Standard's SGL-3 speculative grade liquidity rating reflects Moody's expectation for an adequate liquidity profile over the next 12-15 months supported by sizeable cash balances and availability under its $210 million asset based revolving credit facility, balanced by Moody's revised expectation that the achievement of positive free cash flow generation on an LTM basis will be delayed until mid-2020. At June 30, 2019, the company had approximately $310.8 million of cash on hand. The asset based revolving credit facility was undrawn at June 30, 2019 with availability of $159 million after $9.4 million of outstanding letters of credit. The asset based revolving credit facility matures in November 2021. The primary financial covenant under the asset based revolver is a springing fixed charge covenant of 1 to 1 when availability falls below the greater of $15 million or 10% of the facility's borrowing base. Moody's does not expect borrowings on the revolver to trigger the covenant over the next 12-15 months. The senior secured term loan does not have financial maintenance covenants.

Over the coming quarters, Cooper-Standard's cash levels are likely to decline. This is due Moody's expectation of the lack of a strong seasonal improvement in the in Q4 2019 as a result of by the loss of profits resulting from the UAW strike at GM's US plants; by working capital needs to restart production once the strike is over; and expected seasonal cash outflows in Q1 2020. Yet, working capital needs in 2020 should be more moderate, given softening global automotive industry demand and typical seasonal working capital unwind in the second half of 2020. Moody's anticipates that free cash flow generation on a LTM basis to be in the range of negative $20 million by year-end 2020. The company had about $94 million of account receivables outstanding under its receivable transfer agreement at June 30, 2019. The risk of this outlet being unavailable over the long-term weighs on the company's liquidity profile.

The ratings could be upgraded with strong performance during a recovery in global automotive demand and balanced shareholder return policies, along with Debt/EBITDA approaching 3x, and EBITA/Interest coverage, inclusive of restructuring, sustained above 4x, while maintaining a strong liquidity profile.

The ratings could be downgraded with Moody's expectation that improvement in EBITA margin could weaken further or solid improvement could be delayed beyond 2020, of EBITA/Interest coverage being sustained below1.3x, or Debt/EBITDA leverage rising above 5x. Debt funded acquisitions or shareholder distributions or a further weakening liquidity position would also drive a lower rating.

The principal methodology used in these ratings was Global Automotive Supplier Industry published in June 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Cooper-Standard, headquartered in Novi, Michigan, is a leading global supplier of systems and components for the automotive industry. Products include sealing and trim, fuel and brake delivery, and fluid transfer systems. The Company operates manufacturing, design, engineering, administrative and logistics locations in 21 countries around the world. Net sales for the LTM period ending June 30, 2019 was $3.4 billion.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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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