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Rating Action:

Moody's places the CFR of UCI under review for upgrade; assigns Ba3 to new bank facilities

Global Credit Research - 02 Sep 2010

Approximately $839 Million Of Debt Obligations Affected

New York, September 02, 2010 -- Moody's Investors Service placed the ratings of UCI International, Inc.(UCI)--Corporate Family and Probability of Default --Caa1-- under review for upgrade. This action follows the announcement of a proposed refinancing of much of its existing debt. UCI is the ultimate parent of United Components, Inc. In a related action, Moody's assigned ratings on the announced new bank credit facilities at United Components, Ba3. The new bank credit facilities consist of a $75 million senior secured revolving credit facility and a $425 million senior secured term loan facility. The proceeds of the term loan will be used to refinance United Components' existing senior secured term loan due 2012 and senior subordinated notes due 2013.

The following ratings are assigned

United Components, Inc.

Ba3 (LGD2, 25%), proposed $75 million guaranteed senior secured revolving credit due 2015;

Ba3 (LGD2, 25%), proposed $425 million guaranteed senior secured term loan due 2016;

The following ratings are under review for upgrade:

UCI, International, Inc.:

Caa1, Corporate Family Rating;

Caa1, Probability of Default Rating;

Caa3 (LGD5, 85%), unguaranteed senior unsecured notes;

The following ratings will be withdrawn upon the refinancing of the related facilities:

United Components, Inc.

B1 (LGD1, 8%), $172 million (remaining amount) guaranteed senior secured bank term loan due 2012;

Caa2 (LGD4, 58%), $230 million of guaranteed senior subordinated notes maturing 2013

RATINGS RATIONALE

The review will consider the degree to which the proposed transaction will refinance the existing debt at United Components and thereby eliminate the required amortization under the current term loan facility which begins in December 2011, and provide incremental liquidity through the new revolving credit facility. Under the existing facilities, the company faces major increases in cash requirements for debt service beginning in December 2011 with amortization requirements under the term loan of approximately $27 million, followed by about $72 million in March 2012 along with cash interest payment requirements on UCI's unguaranteed notes beginning March 2012. Additionally, as disclosed in the company's 2009 10K, the company expects to make a $96.5 million payment on the notes in March 2012 in order to avoid losing certain tax benefits created by issuing the notes.

Following the refinancing of the United Components debt, UCI is expected to continue to have high cash requirements in order to support the debt service and other payments needed to avoid losing certain tax benefits created by UCI's $339.2 million (as of June 30, 2010) floating rate senior PIK notes. However, the combination of the reduced amortization requirements and additional revolver liquidity are expected reduce UCI's risk of default below levels indicated under the current Caa rating.

Upon the successful completion of the debt refinancing UCI's Corporate Family and Probability of Default Ratings are expected to both elevate to B2, reflecting the company's improved profitability over recent quarters due to the effects of cost reduction initiatives and a stabilizing business environment. The assigned ratings of the new bank credit facilities reflect this expectation. UCI also filed an S-1 with the SEC on July 27, 2010. Moody's will assess any additional impact from the net proceeds of this contemplated transaction upon its completion.

UCI continues to be one of North America's largest automotive aftermarket suppliers, and holds a relatively stable position in supplying aftermarket parts that are critical to vehicle performance. The company's filtration products (about 39% of 2009 revenues) are largely consumables that have relatively short and predictable replacement cycles and are somewhat resistant to economic downturns. The company's fuel delivery systems, cooling systems, and vehicle electronics products (about 61% of 2009 revenues) are non-discretionary products that are required for proper vehicle performance, and have more stable demand patterns which offer revenue visibility. As the domestic vehicle population is expected to increase, albeit at slower rates, the average vehicle age should continue to increase.

UCI's liquidity profile over the next 12 to 24 months is expected to improve following the transaction. UCI's liquidity will be supported by a new $75 million revolving credit facility which is expected to be unfunded upon closing with about $17 million of currently cash collateralized letters of credit expected to be issued under the revolving credit facility. Moody's anticipates UCI to be free cash flow positive over the near-term inclusive of potential excess cash flow repayment requirements under the new term loan, leaving the revolving credit facility largely available over the near-term. As of June 30, 2010, unrestricted cash approximated $174 million. However, large amounts of uncommitted receivable factoring, about $129 million as of June 30, 2010, has supported this cash build up. There is a risk of the discontinuance of these programs, pressuring the company's ability to meet cash need to service the UCI PIK Notes in 2012. However, these factoring arrangements support the commercial relationships between UCI and certain of its longstanding customers. As such, these programs are expected to remain largely in place over the intermediate term. Alternate liquidity is anticipated to remain limited as essentially all the company's domestic assets are expected to be used to secure the new senior secured credit facilities.

The last rating action for UCI was on May 14, 2010 when the Corporate Family Rating was affirmed at Caa1 and the outlook was revised to stable.

The principal methodologies used in rating UCI were Global Automotive Supplier Industry published in January 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

UCI, headquartered in Evansville, Indiana, is one of the larger and more diversified companies primarily servicing the vehicle aftermarket. The company supplies a broad range of filtration products, fuel products, cooling systems, and engine management systems. While approximately 88% of revenues are automotive related, UCI also services customers within the trucking, marine, mining, construction, agricultural, and industrial vehicle markets. Annual revenues in 2009 were approximately $885 million. UCI is a portfolio company of the Carlyle Group.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's Investors Service adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from reliable sources; however, Moody's Investors Service does not and cannot in every instance independently verify, audit or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's places the CFR of UCI under review for upgrade; assigns Ba3 to new bank facilities
No Related Data.
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