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Rating Action:

Moody's rates TI Automotive Finance Plc.'s new senior unsecured notes at B3, upgrades TI Group Automotive Systems' senior secured rating to Ba3; outlook remains positive

06 Apr 2021

New York, April 06, 2021 -- Moody's Investors Service ("Moody's") assigned a B3 rating to TI Automotive Finance Plc.'s proposed senior unsecured notes, and upgraded TI Group Automotive Systems L.L.C.'s (TI Group) senior secured bank credit facility rating to Ba3 from B1. The B1 corporate family rating (CFR) and B1-PD Probability of Default Rating at TI Group are unaffected. TI Group's Speculative Grade Liquidity Rating remains SGL-2. The rating outlook remains positive.

The debt issuance will be leverage neutral as the proceeds will repay secured debt at the TI Group level. However, adding this new class of senior unsecured notes will provide first-loss absorption for claims during a reorganization. With new obligations in a first-loss position and a meaningfully lower amount of secured debt, the expected loss for the secured class is lower, resulting in an upgrade of the secured debt class to Ba3.

RATINGS RATIONALE

TI Group's ratings reflect its market and technological leadership position in automotive fluid systems (fluid storage, carrying and delivery systems), highly diverse and balanced customer and geographic exposures and solid margin profile supported by a flexible cost structure. The company's ability to easily pivot to electrified applications, including battery electric vehicle thermal products and systems and hybrid electric vehicle thermal products and systems and pressure resistant fuel tanks, should continue driving greater content per vehicle over time. TI Group's advancing technologies resulted in nearly half of 2020's new business wins coming from electric vehicle platforms, highlighting good balance between traditional internal combustion engine revenues and evolving focus towards electric propulsion

Debt-to-EBITDA is expected to fall to the 3x-range (after Moody's standard adjustments) by year-end 2021 with free cash flow positive but lower than 2020's level due to growth in working capital and capital expenditures, and resumption of the dividend policy. Moody's anticipates margins to rebound over the next couple of years along with continued growth in global light vehicle volumes.

The positive outlook incorporates Moody's expectation for margins to sustain a trajectory back to levels generated before the pandemic by late-2022, while generating free cash flow consistent with that timeframe despite higher growth spending. The outlook also considers TI Group's success in capturing similar-margin new business across all platforms, including electric vehicles as they steadily gain market share.

TI Group's liquidity is good, supported by Moody's expectations of cash in the €400 million - €430 million range and availability under the revolving credit facility. Cash on hand was approximately €486 million and the $225 million revolving credit facility was fully available at December 31, 2020. Moody's anticipates free cash flow generation of approximately €70 million in 2021 as recovering global automotive production will likely consume cash in the first half of 2021.

The senior secured rating was upgraded to Ba3 from B1 (the CFR level) at TI Group to reflect the reduced expected loss for the senior secured class as a result of the new senior unsecured notes and the considerably lower relative amount of secured claims. The secured debt rating incorporated a one-notch override down from the Loss Given Default model outcome. Moody's anticipates that as the company's European business grows or if the credit profile of the company weakens, obligations treated as secured claims or the amount of secured debt would grow.

The following ratings/assessments are affected by today's action:

Rating Assigned:

..Issuer: TI Automotive Finance Plc.

....New Senior Unsecured Notes, Assigned at B3 (LGD5)

Ratings Upgraded:

..Issuer: TI Group Automotive Systems L.L.C.

....Senior Secured Term Loan B, Upgraded to Ba3 (LGD3) from B1 (LGD3)

....Senior Secured Revolving Credit Facility, Upgraded to Ba3 (LGD3) from B1 (LGD3)

Outlook Actions:

..Issuer: TI Automotive Finance Plc.

....Outlook Assigned, Positive

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

The ratings could be upgraded with improving earnings that provide the expectation of continued, solid free cash flow, along with debt reduction such that debt-to-EBITDA is sustained below 2.5x and EBITA-to-interest sustained over 4.5x. Important considerations for any upgrade would be good liquidity and financial policies that balance shareholder returns with capital reinvestment and debt reduction. The ratings could be downgraded with the expectation of EBITA-to-interest under 3.5x, debt-to-EBITDA sustained above 4x into 2021, or a deteriorating liquidity profile. The ratings could also be downgraded if shareholder distributions or acquisitions result in leverage expected to be sustained at the above threshold.

TI Group's products and services are exposed to material environmental risks from increasing regulations on carbon emissions. Automotive manufacturers have accelerated their focus on electrified products to meet increasingly stringent regulatory requirements. As automotive sales shift to hybrid electric and battery electric vehicles, TI Group is shifting its product mix more towards thermal cooling and heating products and plastic and pressure-resistant fuel tanks. Nonetheless, even with this gradual shift to electrification, internal combustion engines will maintain a meaningful presence in vehicle powertrains over the next decade.

The principal methodology used in these ratings was 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.

TI Group Automotive Systems, L.L.C., a subsidiary of TI Fluid Systems plc, is a leading global manufacturer of fluid storage, carrying and delivery systems primarily serving automotive OEMs of light vehicles. Fuel Tank and Delivery Systems represent roughly 45% of revenues with Fluid Carrying Systems 55%. Revenues for the year ended December 31, 2020 were approximately €2.8 billion. TI Fluid Systems plc has been majority owned by affiliates of and funds advised by Bain Capital, LP since 2015.

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Eric Greaser
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

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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