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13 Dec 2010
Approximately $220 million of debt rated
New York, December 13, 2010 -- Moody's Investors Service upgraded the ratings on the Corporate
Family (CFR), Probability of Default (PDR) and senior secured notes
of Viasystems, Inc. ("Viasystems"), a wholly-owned
subsidiary of Viasystems Group, Inc., to B2 from B3.
The rating outlook is positive.
The following ratings were upgraded:
Corporate Family Rating to B2 from B3
Probability of Default Rating to B2 from B3
$220 Million 12% Senior Secured Notes due January 2015 to
B2 (LGD-4, 50%) from B3 (LGD-3, 44%)
RATINGS RATIONALE
The upgrade of Viasystems' CFR to B2 reflects the company's
improved operating performance and realized benefits from the integration
of the February 2010 acquisition of Merix Corporation ("Merix").
Benefits include the addition of low-cost multi-layer printed
circuit board (PCB) manufacturing capacity in Asia and higher margin PCB
quick-turn capabilities in North America, cost synergies
and improved end market diversification. With Merix, Viasystems'
portfolio has expanded to include a more comprehensive set of capabilities
across a wider range of customers enabling it to compete more effectively,
expand into new markets and achieve share gains.
The rating revision also takes into consideration the company's
continued improvement in factory utilization as a result of increased
PCB volumes from improved global demand across end markets, new
program / customer wins and favorable product mix. These attributes,
combined with cost takeouts from the 2009 restructuring and a better pricing
environment, have led to expanded gross and operating margins,
higher EBITDA and lower financial leverage of 2.2x adjusted total
debt to LTM EBITDA.
Despite Viasystems' expanded footprint and increased scale,
the B2 CFR also captures offsetting attributes which include the company's
significant customer concentration, single-digit operating
margins and large exposure to more volatile end markets (e.g.,
telecommunications and automotive). In addition, the rating
incorporates the cyclical nature of the PCB and EMS industries,
and Viasystems' limited demand and pricing visibility. Lastly,
the rating recognizes Viasystems' sizable working capital and capital
expenditure requirements during periods of rising demand and strong revenue
growth, which can result in episodes of breakeven or negative free
cash flow (FCF).
Viasystems maintains good liquidity supported by cash balances of $85
million at September 2010, though LTM FCF was negative $8
million due primarily to the acquisition of Merix. Additionally,
approximately $53 million was available under its $75 million
ABL credit facility and $24 million was available under its two
China-based $35 million credit facilities. Over the
next twelve months, Moody's expects Viasystems to fund its
operations from internal cash sources, however we anticipate FCF
to be roughly breakeven given the incremental growth capex (i.e.,
approximately $30-35 million/annum) necessary for implementing
a portion of Viasystems' multi-year PCB capacity expansion
project.
The positive rating outlook reflects our expectation that client relationships
will remain relatively steady and Viasystems will continue to experience
solid customer demand, penetrate into existing customer accounts
and execute on new program / customer wins. We expect this to result
in operating margins in the 6-8% range, solid gross
cash flow generation and modest improvement in credit protection measures.
Ratings could experience upward pressure to the extent Viasystems were
to further increase scale, improve customer diversification,
and boost exposure to higher margin PCB/Assembly end markets. Ratings
could also migrate higher if the company were to generate consistent positive
FCF leading to improved internal liquidity and FCF to adjusted total debt
of at least 10% on a sustained basis.
Downward ratings pressure could result if Viasystems' revenues fell
materially due to customer/share losses and/or poor business execution;
margins eroded as a result of lower volumes, pricing pressures or
higher operating costs; FCF remained negative for an extended period
leading to significantly weaker liquidity; and/or financial leverage
exceeded 5.0x adjusted total debt to EBITDA on a sustained basis.
Moody's subscribers can find additional information in the Viasystems
Credit Opinion published on www.moodys.com.
The last rating action was on November 4, 2009 when Moody's
affirmed Viasystems' B3 CFR, assigned a B3 rating to the $220
million senior secured notes and changed the outlook to positive from
negative.
The principal methodologies used in rating Viasystems were Global EMS
and IT Distribution Industries published in December 2008, and Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Headquartered in St. Louis, Missouri, Viasystems,
Inc., a wholly-owned subsidiary of Viasystems Group,
Inc., is a provider of complex multi-layer printed
circuit boards and electro-mechanical solutions utilized in a variety
of applications across the automotive, telecommunications,
industrial / instrumentation / medical / consumer, computer / data
communications and military / aerospace end markets. The company
is a supplier to over 800 original equipment manufacturers (OEMs) as well
as several Tier 1 EMS providers. Revenues and EBITDA (Moody's
adjusted) for the last twelve months ended September 30, 2010 (LTM)
were $817 million and $115 million, respectively.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information,
and 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 adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify 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
Gregory A. Fraser
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
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's raises Viasystems' CFR and senior secured notes to B2; outlook remains positive
No Related Data.
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