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Rating Action:

Moody's downgrades the ratings of Clarios, CFR at B2, stable outlook

13 May 2020

Approximately $11.4 billion of rated obligations affected

New York, May 13, 2020 -- Moody's Investors Service, (" Moody's ") downgraded the ratings of Clarios Global LP ("Clarios") - including corporate family rating (CFR) to B2 from B1, the probability of default rating (PDR) to B2-PD from B1-PD, senior secured ratings to B1 from Ba3; and senior unsecured rating to Caa1 from B3. The rating outlook is stable. This action concludes the review for downgrade initiated on March 26, 2020.

Moody's also assigned a B1 rating to Clarios' new $500 million senior secured notes. The net proceeds of the notes will be used for general corporate purposes and support Clarios' liquidity profile.

The following ratings were downgraded:

.Issuer: Clarios Global LP

.... LT Corporate Family Rating, to B2 from B1 review for downgrade

.... Probability of Default Rating, to B2-PD from B1-PD review for downgrade

....Senior Secured Bank Credit Facility, to B1 (LGD3) from Ba3 review for downgrade (LGD3)

....Senior Secured Regular Bond/Debenture, to B1 (LGD3) from Ba3 review for downgrade (LGD3)

....Senior Unsecured Regular Bond/Debenture, to Caa1 (LGD6) from B3 review for downgrade (LGD5)

The following rating was assigned

.Issuer: Clarios Global LP

....Senior Secured Regular Bond/Debenture, at B1 (LGD3).

Outlook Actions:

..Issuer: Clarios Global LP

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

RATINGS RATIONALE

Clarios' ratings, including the B2 CFR, incorporate financial leverage which is higher than Moody's initial expectations even before the business impact from the coronavirus pandemic, and which will likely be exacerbated by the pandemic's effect on consumer demand in the automotive aftermarket and original equipment market. Clarios' debt/EBITDA is estimated at about 9x for the LTM period ending March 31, 2020 (inclusive of Moody's standard adjustments, and excluding certain management adjustments), which will be elevated well into the company's 2021 fiscal year. Clarios' purchase of a JV interest in 2019 explained some of the higher than expected leverage, yet Moody's expects the company will be acquisitive over time. The company's profits and cash flow have been weaker than expected, in part reflecting the relatively warm winter season which yielded fewer automotive battery failures, and will be pressured down further by automotive manufacturer temporary plant closures and stay-at-home policies. Moody's expects the free cash flow to be moderately negative for this year even anticipating some second half 2020 benefits from working capital release.

Positively, Clarios is a very substantive entity with a strong market share in automotive batteries, relatively strong low double-digit EBITA margins as an automotive aftermarket parts supplier, longstanding customer relationships, and high barriers to entry given the industry's environmental liability risks. Clarios' automotive aftermarket sales (about 75%) benefit from a more stable, albeit lower, growth profile then that of original equipment automotive vehicles. Clarios' products benefit from the large existing consumer vehicle fleet which uses traditional SLI batteries, and a gradual mix shift to advanced batteries that support start-stop fuel economy technologies and increased automotive vehicle electrification. Clarios has a well developed used battery collection and lead recycling operation, which aids efficiency by controlling the prime raw material cost. Clarios is also expected to benefit from ongoing efforts to improve operating efficiencies and cost savings in the range of $300- $400 million though 2023.

The stable outlook reflect Clarios' competitive position as a leading supplier of automotive batteries and that the company's recent top line results reflect demand that will return into 2021 as battery failures continue and automotive manufacturer operations recover.

Clarios is expected to have an adequate liquidity profile through calendar 2020 supported by a $750 million asset based revolving credit facility and a $750 million cash flow revolving credit facility. As of March 31, 2020 cash on hand was in the mid $300 million range. While availability under the ABL facility was modest at March 31, 2020, the cash flow revolving credit facility was mostly availability. The financial covenant under the senior secured facilities is a springing maximum first lien net leverage ratio test, based on availability, with no step downs. The asset based revolving credit facility has a springing fixed charge coverage test, based on availability. These availability thresholds are unlikely to trigger over next 12 months, while covenant cushion may be pressured. We expect free cash flow generation will be moderately negative for fiscal year-end September 2020, largely due to the impact of the coronavirus pandemic. With the seasonality of Clarios' business, LTM negative free cash flow will likely increase to over $100 million range into the first 2 quarters of fiscal 2021.

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

The rating could be downgraded with expectations that Debt/EBITDA will be sustained above 8x, and EBITA/interest below 1x into the back half of 2021. Developments with the potential to negatively impact the company's metrics include, rising raw material cost which are not passed on to customers, the loss of a meaningful customer, the inability to meaningfully reflect the results of the company's cost savings programs, or adverse environment liabilities. A deterioration in liquidity could also result in rating downgrades.

The rating could be upgraded with consistent improvement in cash flow generation and debt reduction driving Debt/EBITDA below 7x and EBITA/Interest approaching 2.5x.

Clarios's role in the automotive industry exposes the company to material environmental risks arising from increasing regulations on carbon emissions. As automotive manufacturers seek to introduce more electrified powertrains, this market shift will be more impacted by hybrid vehicle technology over the next 5-7 years, rather than battery electric vehicles. Clarios's advanced battery product offerings address this trend. In addition, lead acid batteries will continue to be important in the transition to electric vehicles. Lead acid batteries contain the necessary cold cranking power for SLI applications in electric vehicles.

Clarios maintains positive governance considerations on debt repayment policies. Yet, the execution of this policy has been delayed by the funding of a joint venture interest, and weaker than anticipated operating performance. Clarios's free cash flow generation is highly seasonal, largely occurring in the second-half of the fiscal year. As Clarios enters its fiscal year 2021, we anticipate debt reduction to resume.

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.

Clarios Global LP (Clarios), headquartered in Milwaukee, Wisconsin is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The company serves both automotive original equipment manufacturers and the general vehicle battery aftermarket and also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles. The company will be owned by affiliates of Brookfield Business Partners L.P. and other institutional partners including Caisse de dépôt et placement du Québec. Revenues for the LTM period ending March 31, 2020 were approximately $8.0 billion.

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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