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Global Credit Research - 04 Aug 2010
Approximately $3.1 billion of rated debt obligations affected
New York, August 04, 2010 -- Moody's Investors Service raised TRW Automotive, Inc.'s (TRW)
Corporate Family and Probability of Default ratings to B1 from B2.
Moody's also raised the ratings of the senior secured credit facilities
to Ba1 from Ba2, and raised the ratings for the guaranteed senior
unsecured notes to B2 from B3. The Speculative Grade Liquidity
Rating also was affirmed at SGL-2. The rating outlook is
The upgrade of TRW's Corporate Family Rating (CFR) to B1 reflects the
company's strong operating performance in the first half of 2010
and the expectation that it will continue to benefit from recovery in
the automotive industry even though normal seasonal trends and sluggishness
in European markets will temper the pace of financial improvement in the
second half of the year. The company's performance in the
first half of 2010 was supported by recovering consumer demand in North
America, automotive dealer inventory restocking, and cost
structure improvement actions taken in the recent years. For the
first six months of 2010, the company's reported operating
profit of $622 million demonstrated a sharp improvement from the
$81 million loss recorded in the prior year, and LTM EBIT/Interest
(including Moody's standard adjustments) was strong at about 3.2x.
Favorable business conditions have also supported TRW's free cash flow
generation in the first half of 2010 facilitating debt paydowns,
with reported debt of about $2.0 billion at July 2,
2010, down from over $2.4 billion at the prior year
TRW's established position as an important supplier to the automotive
industry, with key technologies in safety products, and a
sound level of geographic, customer, and product diversification
is expected to support the company's competitive position over the
long-term. As auto demand strengthens, the company
should enjoy favorable revenue trends and, in conjunction with a
more lean cost structure post restructuring actions taken over the last
several years, earnings and cash flow generation should show continued
strength. Yet, industry seasonality, expected softness
in Europe, and the impact of recent currency fluctuations is expected
to soften the pace of this improvement in the second half of 2010.
Moody's expects European automobile registrations to weaken in the
second half of 2010 as the benefits of 2009 government sponsored scrappage
programs will not be repeated. Although this will cause some headwinds
for TRW's operating results, Moody's believes that the
company will sustain operating metrics supportive of the B1 rating.
The positive outlook considers that even with the challenges of recovering
global economies TRW's credit metrics over the intermediate term
should continue to improve with growth in global automotive production
expected in 2011. Moreover, Moody's believes that TRW's
improved cost structure should continue to support the company's
TRW's is expected to continue to operate with a good liquidity profile
over the next twelve months reflected by the rating of SGL-2.
As of July 2, 2010 cash and cash equivalent balances were $767
million. The company's free cash flow over the next twelve
months is expected to be modestly positive inclusive of a normal seasonal
cash burn during the first quarter of 2011. Improved operating
performance will also support higher levels of capital expenditures.
TRW's liquidity position also is supported by a $1.256 billion
revolving credit facility. As of July 2, 2010, the
revolving credit facility was unfunded with $55 million of issued
letters of credit. The majority of the committed facility is expected
to remain available over the next twelve months providing ample funding
capacity for the company's needs. The financial covenant cushions
over the near-term are expected to benefit from the company's recent
strong quarterly performance allowing TRW full access to the revolver
availability. Alternative liquidity arrangements will continue
to be limited by the current bank liens over substantially all of the
company's domestic assets and lien baskets under the unsecured notes.
Corporate Family Rating, to B1 from B2;
Probability of Default Rating, to B1 from B2;
$1.256 billion combined senior secured domestic and global
revolving credit facilities, to Ba1 (LGD1, 7%) from
Ba2 (LGD1, 8%);
$225 million senior secured term loan A2, to Ba1 (LGD1,
7%) from Ba2 (LGD1, 8%);
$500 million senior unsecured notes due 2014, to B2 (LGD4
60%) from B3 (LGD4, 61%);
Euro 275 million senior unsecured notes due 2014, to B2 (LGD4 60%)
from B3 (LGD4, 61%);
$600 million senior unsecured notes due 2017, to B2 (LGD4
60%) from B3 (LGD4, 61%);
$250 million senior unsecured notes due 2017, to B2 (LGD4
60%) from B3 (LGD4, 61%);
Speculative Grade Liquidity Rating, at SGL-2
The $259 million of exchangeable notes are not rated by Moody's.
The last rating action was on March 4, 2010 when TRW's Corporate
Family Rating was raised to B2 and the rating outlook changed to positive.
Future events that have the potential to improve TRW's ratings include:
further improvement in production levels in the automotive markets and
improved operating margins resulting from new business wins or productivity
improvements. Consideration for a higher ratings could arise if
these factors were to lead to EBIT margins approaching the high single
digits, and future quarterly EBIT/Interest coverage consistently
above 2.3x while maintaining adequate liquidity.
Consideration for downward outlook or rating migration would arise if
industry conditions were to deteriorate without sufficient offsetting
restructuring actions or savings by the company, or if TRW is unable
to maintain adequate liquidity levels to operate through a prolonged industry
The principal methodology used in rating TRW was Moody's the Global Auto
Supplier Industry Methodology, published in January 2009 and available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
TRW Automotive, Inc., headquartered in Livonia,
MI, is among the world's largest and most diversified suppliers
of automotive systems, modules, and components to global vehicle
manufacturers and related aftermarket. The company has four operating
segments: Chassis Systems, Occupant Safety Systems,
Automotive Components, and Electronics. Its primary business
lines encompass the design, manufacture, and sale of active
and passive safety related products. Revenues in 2009 were approximately
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raises TRW's Corporate Family Rating to B1, rating outlook positive
250 Greenwich Street
New York, NY 10007
No Related Data.
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