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Rating Action:

Moody's downgrades Horizon's CFR to C from Caa3, outlook is stable

14 Jun 2019

New York, June 14, 2019 -- Moody's Investors Service ("Moody's") downgraded Horizon Global Corporation's ("Horizon") Corporate Family Rating (CFR) to C from Caa3, its Probability of Default Rating to C-PD from Caa3-PD and the senior secured first lien term loan rating to Caa3 from Caa2. Moody's also affirmed the company's SGL-4 Speculative Grade Liquidity. The outlook is stable.

The downgrade reflects Moody's expectations that modest earnings improvement will not be sufficient to reduce leverage to a sustainable level and that the sale of the Asia-Pacific segment will, while reducing secured leverage, increase total leverage and create greater reliance on a quick turnaround in the more weakly performing U.S. and European operations to diminish restructuring risk.

"Horizon continues to experience issues maintaining topline and managing its costs partially due to softness in some of its end-markets," said Inna Bodeck, Moody's lead analyst for the company. "While the sale of the Asia-Pacific business should provide sufficient funds to meet the March 2020 required $100 million term loan payment, liquidity beyond that point is still weak because Horizon has significant maturities in 2021."

On June 7th, 2019 Horizon announced that it has initiated a formal process to explore the sale of its Asia- Pacific business segment in order to meet the requirement of its March 2019 amendment to pay down the first lien term loan by $100 million by May 15, 2020. Moody's believes that Horizon will generate enough interest to comfortably make this payment on the term loan as the division has experienced continued performance improvement. The Asia-Pacific business segment's reported EBITDA increased to $25.6 million in FYE 2018 as compared to $15.3 million in FYE 2016.

Moody's took the following rating actions on Horizon Global Corporation:

Ratings downgraded:

Corporate Family Rating, downgraded to C from Caa3;

Probability of Default Rating, downgraded to C-PD from Caa3-PD;

$210 million ($188 million remaining amount) senior secured first lien term loan due 2021, downgraded to Caa3 (LGD3) from Caa2 (LGD3)

Ratings affirmed:

Speculative Grade Liquidity, affirmed at SGL-4

Outlook Action:

Outlook, changed to Stable from Negative

RATINGS RATIONALE

Horizon's C CFR broadly reflects the company's very high debt-to-EBITDA leverage (12.3x as of LTM 3/31/2019) and continued liquidity concerns despite modest earnings improvements. Liquidity remains weak because of the expiration of the ABL in June 2020 and the secured debt in 2021, expectation of substantially negative free cash flow, continued constrained availability under the ABL because of covenants, and elevated risk of violating the first lien term loan minimum fixed charge ratio. Moody's believes that the sale of the Asia-Pacific segment will occur at a multiple below the current leverage and thus create further upward pressure on an already unsustainable leverage level. Horizon will be challenged to address its maturities at a manageable cost absent a significant improvement in earnings for the remaining businesses. Moody's views this as unlikely in the short time frame given current softness in some end markets and negative free cash flow in 2019, and this creates high debt restructuring risk. The C rating also reflects Moody's view for a roughly 50% family recovery in the event of a default factoring in some improvement in earnings in 2019.

The stable outlook reflects the extremely high risk of default given weak liquidity and significant maturities in 2020 and 2021.

The ratings could be upgraded if the company stabilizes its operating performance and realizes sufficient sustained improvements in earnings, including gaining traction with actions to resolve issues in the Europe-Africa region, improves free cash flow and meaningfully reduces leverage. The company would also need to improve liquidity including addressing upcoming maturities to be considered for an upgrade.

Ratings could be downgraded if recovery prospects weaken.

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.

Horizon, headquartered in Troy, Michigan, is a publicly-traded manufacturer and distributor of towing, trailer, cargo management and other products primarily for the automotive market. Revenue for the last twelve months ended March 2019 was approximately $843 million with a presence in the Americas (47% of LTM 3/31/2019 revenue), Europe (38%) and Asia (15%). The company was spun off from Tri-Mas in 2015 and has experienced operational issues since the acquisition of Westfalia in 2016 and transitioning its main Americas retail and aftermarket distribution center to Kansas City from South Bend and Dallas at the end of 2017.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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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.

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Inna Bodeck
AVP - 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

John E. Puchalla, CFA
Associate Managing Director
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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