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Rating Action:

Moody's downgrades Spirit AeroSystems senior unsecured rating to Ba2; ratings on review for downgrade

13 Jan 2020

New York, January 13, 2020 -- Moody's Investors Service ("Moody's") downgraded the senior unsecured debt rating of Spirit AeroSystems, Inc. ("Spirit") to Ba2 from Baa3, and concurrently assigned the company a Ba2 Corporate Family Rating, a Ba2-PD Probability of Default Rating, and an SGL-4 Speculative Grade Liquidity rating. All ratings are on review for downgrade.

"The downgrade reflects our expectation that Spirit's liquidity profile will quickly and materially erode in the absence of mitigating developments that remain largely out of the company's control," said Eoin Roche, Moody's lead analyst for Spirit.

Recent events have led Moody's to assert that Spirit's earnings and cash generating capability have weakened meaningfully relative to historical trends and prior expectations, and will likely remain as such for at least the next two years.

"Pending layoffs of size suggest ongoing event risk and operational disruption related to now much slower anticipated resumption of production on the MAX program, upon which Spirit is heavily dependent for about half of its revenue and the majority of its earnings and cash flow," added Roche.

"The combination of Spirit's heavy concentration on the MAX program and meaningfully lower anticipated build rates will result in a significant disconnect between revised sales as forecast and a cost base established for what was supposed to have been a multiple of the now likely materially revised plan for volume throughput," according to Roche.

Moody's indicated in an industry report late last week that this is expected to result in substantial operational disruption and significant financial pressure for both Spirit and the broader MAX supply chain.

Moody's continues to expect that some negotiated agreement between Spirit and Boeing will likely be achieved, probably relatively near term. But the rating agency noted heightened uncertainty and elevated financial risk for all affected parties, including the many hundreds of suppliers that participate on one of the biggest aircraft programs in the world.

RATINGS RATIONALE

The Ba2 corporate family rating reflects Spirit's considerable scale as a strategically important supplier in the aero-structures market, as well as the company's strong competitive standing supported by its life-of-program production agreements and long-term requirements contracts on key Boeing and Airbus platforms. Favorable fundamentals in commercial aerospace, with record OEM backlog and good growth prospects in military end-markets, are broadly expected to support sales growth over the longer-term. These considerations are tempered by a high degree of platform and customer concentration and associated financial and operational risk relating to the MAX production halt, which will quickly erode liquidity and prompts heightened uncertainty that will be particularly acute in the first half of 2020 if not resolved in relatively short order.

Moody's ratings are on review for possible downgrade. The review will primarily consider: (1) the financial impact of the halt in production of Spirit's most important aerospace platform, including the forward earnings and cash flow profile and the ensuing ability to remain compliant with financial maintenance covenants; (2) the terms, benefits and duration of any negotiated agreement between Spirit and Boeing; (3) the sufficiency of backstop liquidity provisions; (4) the duration of the shutdown and the likely timing of the ungrounding of the 737 MAX by various regulators; and (5) the resilience of Spirit's supply chain and any related backstop provisions that will be needed to maintain the health of the same, during the shut-down period and when production and pending rate increases resume.

The following is a summary of today's rating actions:

...Issuer: Spirit Aerosystems, Inc.

..Downgrades:

....Senior Unsecured, downgraded to Ba2 (LGD 3), on review for downgrade, previously Baa3, on review for downgrade

..Assignments:

....Corporate Family Rating assigned at Ba2, on review for downgrade,

....Probability of Default Rating assigned at Ba2-PD, on review for downgrade,

....Speculative Grade Liquidity Rating assigned at SGL-4

..Outlook Actions:

....Outlook, Rating on Review

Headquartered in Wichita, Kansas, Spirit AeroSystems, Inc., is a subsidiary of publicly traded (NYSE: SPR) Spirit AeroSystems Holdings, Inc. The company designs and manufacturers aerostructures for commercial aircraft. Components include fuselages, pylons, struts, nacelles, thrust reversers and wing assemblies, principally for Boeing but also for Airbus and others. Revenues for the last twelve months ended September 30, 2019 were approximately $7.7 billion.

The principal methodology used in these ratings was Aerospace and Defense Industry published in March 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Eoin Roche
Vice President - Senior 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

Russell Solomon
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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