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22 Sep 2010
Frankfurt am Main, September 22, 2010 -- Moody's Investors Service has today upgraded the rating for MTU
Aero Engine Holding AG ("MTU" or "the company") to Baa3 with
a stable outlook from Ba1 with a positive outlook. At the same
time Moody's Investors Service has withdrawn the Corporate Family Rating
for its own business reasons. Please refer to Moody's Investors
Service Withdrawal Policy which can be found on our website, www.moodys.com.
This CFR rating is being withdrawn because a rating normally applies to
a speculative grade issuer rating and MTU is now viewed as an investment
grade as is indicated by the assignment of the Baa3 Issuer Rating.
"Today's upgrade of MTU to investment grade reflects the company's
track record of stable revenues and operating performance, which
has allowed the company to achieve credit metrics in line with a higher
rating category," says Christian Hendker, Moody's
lead Analyst for MTU. "In particular, today's
rating action acknowledges that this stable performance was achieved despite
last year's recessionary environment, which did not materially
impact MTU's performance in its OEM and MRO division -- even
though the company's airline customers experienced significant declines
in both passenger and cargo traffic across almost all regions,"
Mr Hendker continues. Indeed, Moody's believes that
MTU's operating profitability could potentially even improve and
transform into rising cash generation on a sustained basis, as evidenced
by an increase in RCF to net Debt from 24.9% achieved in
2009 to above 40% in the past 12 months ending June 2010,
in line with Moody's requirements for the Baa3 rating category.
The stable rating outlook is based on Moody's expectation that MTU
continues to generate EBITA margins materially above 9% and preserving
financial leverage -- as measured by RCF to Net Debt of above 25%
-- as well as Debt to EBITDA below 2.5x through the cycle
(though this number could be slightly exceeded for a limited period of
time following a material acquisition, should it occur) .
Moody's also expects no additional significant payouts linked to
development projects, such as the A400M. In addition,
the stable outlook reflects Moody's expectation that any potential
large acquisitions, should such opportunities materialise,
would be at least partially financed through equity funds so that MTU's
key credit metrics could be sustained at the levels outlined above.
MTU's ratings could potentially experience downward pressure if
RCF to Net debt contracts to below 25%, debt to EBITDA falls
below 2.5x or EBITA margins fall below 9% or in a scenario
of continued negative free cash flow generation.
Upward rating pressure would require longer-term business profile
improvements, reflected in a rising scale support by a further diversified
engine portfolio in the OEM and MRO division, as well as a sustained
track record of improved credit metrics, such as RCF to Net debt
above 40% and EBITA-Margins of around 12%.
In 2009, MTU improved its overall profitability on the back of strengthened
performance at its services segment (MRO division) and despite a moderate
decline in revenues to EUR2.6 billion on the back of lower spare
parts sales, while the OEM division continued to perform solidly,
on the back of a solid order book which has not been exposed to significant
order cancellations. The rating agency expects MTU to be able to
continue to operate within credit metrics that are commensurate with the
Baa3 rating category, given that (i) passenger and cargo traffic
volumes had already started to increase at the beginning of 2010;
(ii) that aircraft manufacturers have maintained record order books helped
by continuous funding availability of new aircrafts; (iii) MTU's
strong MRO contract base; and (iv) MTU's financial policy,
which is committed to preserving adequate credit metrics.
Today's rating action also represents an acknowledgement of MTU's
recent track record of strong free cash flow generation, which was
sustained in H1 2010, and which Moody's anticipates will be
sustained going forward. MTU has a solid liquidity cushion,
comprising EUR153 million of cash on hand as at the end of June 2010 and
a EUR100 million committed revolving credit facility due in 2012 that
is protected by financial covenants. MTU's working capital
needs have been continuously reduced over the past few years, partially
driven by rising contractually negotiated prepayments, which support
a capital structure with a low financial debt position (EUR193 million
reported net financial debt as at the end of June 2010).
MTU's funding needs for R&D and entry fees into new programme
participations remain the company's primary (discretionary) burdens
on free cash flow and also remain the key drivers of cash flow use going
forward. However, Moody's recognises that these strategic
initiatives provide the basis for medium- to long-term revenue
protection and could result in medium-term business profile improvements,
particularly a more diversified engine portfolio.
The last rating action on MTU was implemented on 11 September 2009,
when Moody's changed the outlook on MTU's corporate family rating
to positive from stable.
..Issuer: MTU Aero Engines Holding AG
....Issuer Rating, Upgraded to Baa3
....Probability of Default Rating, Withdrawn,
previously rated Ba1
....Corporate Family Rating, Withdrawn,
previously rated Ba1
..Issuer: MTU Aero Engines Holding AG
....Outlook, Changed To Stable From
The principal methodology used in rating MTU Aero Engine Holding AG was
Global Aerospace and Defense rating methodology published in June 2010.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Headquartered in Munich, Germany, MTU is a world-leading
manufacturer of aircraft engines, sub-systems and components,
and a leading independent provider of MRO services for commercial and
military jet engines. For the 12 months ending 2009, MTU
reported revenues of EUR2.6 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public 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.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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
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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.
Frankfurt am Main
Christian Hendker, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's upgrades MTU to Baa3, stable outlook
An der Welle 5
Frankfurt am Main 60322
No Related Data.
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