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Global Credit Research - 13 Oct 2010
Approximately $100 million of rated securities affected
New York, October 13, 2010 -- Moody's Investors Service upgraded Commercial Vehicle Group,
Inc.'s ("CVGI") Corporate Family Rating ("CFR")
to Caa1 from Caa2, and revised the ratings outlook to positive from
negative. These actions recognize the continuing improvement in
the build rates for commercial vehicles and the realized benefits of the
company's operating and capital restructurings. Moody's
also upgraded the $98 million 8% senior notes due 2013 to
Caa2 from Caa3. Concurrently, Moody's raised CVGI's short
term liquidity assessment to SGL-2 from SGL-4 reflecting
our expectation of sizeable unrestricted cash balances and continued improvement
in operating cash flows.
The positive actions reflect improved liquidity and Moody's expectation
that credit metrics will continue to improve over the intermediate term
as a result of cost actions taken during the economic downturn and continuing
modest improvement in the North American OEM truck market. Moody's
estimates that adjusted debt-to-EBITDA leverage remained
at 10.0x for the trailing twelve months ended June 30, 2010,
but expects leverage to trend to the 7-8 times range by end of
the year. CVGI reported approximately $52 million of cash
at 6/30/10, largely the result of a $25 million equity offering
and $21 million income tax refund received in the first half of
2010. Moody's believes the cash will help CVGI manage working
capital needs and provide cushion given its thin operating margins.
The Caa1 CFR reflects modest size, high debt leverage, and
exposure to highly cyclical commercial vehicle end markets. Demand
for commercial vehicle components is sensitive to both economic cycles
and regulatory implementation schedules. The CFR considers high
debt service costs and refinancing risk associated with debt maturities
starting in 2012. However, Moody's recognizes the company's
demonstrated ability to manage its cost structure and working capital
position to minimize cash burn amidst a challenging economic environment.
Moody's believes the company is positioned to benefit from additional
modest improvement in commercial vehicle build rates through at least
The positive rating outlook incorporates Moody's view that CVGI's
performance improvements aided by increased class 8 vehicle build rates
and cost restructuring should position the company to reduce leverage
by another turn in 2011 and generate EBIT/Interest over 1x. The
positive outlook also reflects Moody's expectations that CVGI is
in a better position to maintain good liquidity to support its operations,
and generate sufficient EBITDA to comfortably cover cash interest as interest
on $42 million 11% (if paid in cash)/ 13% (if paid
in kind) third lien secured notes becomes payable in cash starting in
Moody's could consider upgrading the ratings if CVGI continues to
improve its profitability, funds its working capital needs,
and reduces debt leverage to the mid single digit range on a sustainable
basis. Conversely, we could consider downgrading the ratings
or stabilize the outlook if we believe credit metrics are likely to remain
weak for the rating for an extended period (especially if EBIT/interest
expense remains below 1 times), or if there is a deterioration in
the company's liquidity position or in end market conditions.
Use of cash outside of current expectations (notably if used for acquisitions
or shareholder friendly activities) could also put downward pressure on
the ratings and/or outlook.
The following summarizes the ratings actions taken:
Commercial Vehicle Group, Inc.
..Corporate Family Rating to Caa1
..Probability of Default Rating at Caa1
..$98 million 8% senior unsecured notes due
2013 to Caa2 (LGD4, 66%) from Caa3
The ratings outlook is positive.
The Speculative Grade Liquidity Rating was raised to SGL-2 from
The principal methodologies used in rating Commercial Vehicle Group,
Inc. 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.
Commercial Vehicle Group, Inc is a provider of customized products
for the commercial vehicle market, including the heavy-duty
truck, construction, agricultural, specialty and military
transportation markets. The company is an amalgamation of several
predecessor organizations whose products include cab structures &
assembly, seats & seating systems, trim systems &
components, wire harnesses, wipers, controls and mirrors.
Revenues were $535 million for the LTM period ended June 30,
Information sources used to prepare the credit rating is/are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
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
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Investors Service provides a date that it believes is the most reliable
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Please see the ratings disclosure page on our website www.moodys.com
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of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Commercial Vehicle Group to Caa1; outlook positive
250 Greenwich Street
New York, NY 10007
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