Approximately $3.5 billion of rated obligations affected
New York, April 28, 2011 -- Moody's Investors Service assigned initial ratings to Delphi Corporation's
(Delphi) - Corporate Family and Probability of Default Ratings
at Ba2. In a related action Moody's assigned a Baa3 rating to Delphi's
new senior secured credit facilities, and a Ba3 rating to Delphi's
new senior unsecured notes. The Speculative Grade Liquidity Rating
is SGL-2. The rating outlook is stable.
Delphi is the U.S. based subsidiary of Delphi Automotive,
LLP (DAL), which was created to acquire, through a 363 bankruptcy
sale, certain assets of the former Delphi Corporation (the Predecessor).
As a result of that process, DAL incorporates largely the non-U.S.
operations of the Predecessor, and excludes the unprofitable U.S.
based operations as well as the debt and legacy pension, OPEB and
other obligations of the Predecessor. Following the reorganization
process, a portion of DAL's equity was held by General Motors
Corporation and the Pension Benefits Guarantee Corporation (PBGC).
On March 31, 2011 DAL purchased the Class A and C equity interests
owned by GM and the PBGC for $4.4 billion. The transaction
was funded with $2.3 billion of cash and $2.5
billion of debt. The new senior secured term loans and unsecured
notes being issued by Delphi, and guaranteed by DAL, will
refinance the debt incurred to fund the share repurchase.
The following ratings were assigned:
Corporate Family Rating, Ba2;
Probability of Default, Ba2;
Baa3 (LGD2, 22%), for the $1.0 billion
senior secured revolving credit facility;
Baa3 (LGD2, 22%), for the $250 million senior
secured term loan A;
Baa3 (LGD2, 22%), for the $1.15 billion
senior secured term loan B;
Ba3 (LGD4, 66%), for the $1.1 billion
guaranteed senior unsecured notes
SGL-2, Speculative Grade Liquidity Rating
The Ba2 Corporate Family Rating (CFR) reflects DAL's modest leverage
with debt/EBITDA of about 2.4x (as adjusted by Moody's) for
the proposed debt issue, and the expectation that strong margins
from ongoing business operations will support favorable debt service metrics
over the intermediate term. The business maintained a high level
of product investment and was able to sustain its competitive position
as a supplier of automotive components to major automotive OEM's
through the bankruptcy reorganization process. About 30%
of the company's revenues are derived from component sales to Ford
Motor Company and General Motors Company; although this is lower
degree of customer concentration than had existed at the Predecessor company,
it still poses some risk as these two OEM's rebuild their businesses.
Geographic concentrations have also improved with North America representing
about 33% of 2010 revenues and Europe representing about 42%.
However, each of Delphi's business segments continues to be
highly competitive with major regional participants.
DAL's EBIT margin (as adjusted by Moody's) for the year ended
12/31/10 was about 9%, which is well above the margin levels
reported by the Predecessor. Restructuring actions taken to improve
margins include: facility closures, the sale of businesses,
and global headcount reductions. A large portion of the hourly
workforce are now in low cost manufacturing locations. While executing
the above items, DAL continued to book new business and has benefited
from recovering volumes in the automotive industry.
Following the refinancing transaction, DAL's capital structure
is expected to be well suited for current automotive industry conditions.
With a little over half of the funded debt structure comprised of senior
secured term debt, DAL is positioned to use excess free cash flow
to prepay debt without penalties.
The stable rating outlook reflects Moody's view that DAL is well positioned
to benefit from recovering automotive industry conditions. However,
further profit improvement could be tempered by increasing raw material
cost pressures. Delphi's ability to sustain recently achieved
margins over the intermediate-term could positively impact the
rating or outlook.
The SGL-2 Speculative Grade Liquidity Rating anticipates that the
company will maintain a good liquidity profile over the next twelve months,
supported by strong cash balances, availability under its revolving
credit facility and our expectation of positive free cash flow generation
over the near-term. As of December 31, 2010,
DAL had unrestricted cash and cash equivalents of $3.2 billion
and $550 million of short-term investments. The company
used $2.3 billion of this cash on March 31, 2011 as
part of the purchase price for the outstanding shares held by GM and the
PBGC. Over the near-term DAL is anticipated to generate
positive free cash flow after minimal term loan amortization requirements
and higher levels of capital expenditures to support new business.
The new $1 billion revolving credit facility is expected to be
unfunded at closing with about $19 million of letters of credit
outstanding. Financial covenants under the senior secured term
loan are expected to include a net leverage ratio test for which the company
is expected to maintain ample covenant cushion over the near-term.
Alternate liquidity is supported by a debt incurrence basket under the
credit facilities which permits additional amounts of foreign account
receivable factoring and other foreign debt.
Factors that have the potential to improve Delphi's rating or outlook
include: sustaining EBIT margins above 10% and Debt/EBITDA
sustained below 2.0x supported by continued growth automotive demand
and measured policies toward acquisitions and shareholder actions,
while maintaining a good liquidity profile.
Factors that have the potential to lower Delphi's rating or outlook
include: deterioration of automotive demand or greater raw material
cost pressures resulting in EBIT margins approaching 7%,
as well as debt funded acquisitions or other shareholder actions.
Consideration for a lower outlook or rating could result if any of these
factors lead to Debt/EBITDA above 2.5x or a deterioration in liquidity.
The principal methodology used in rating Delphi was the Global Automotive
Supplier Industry Methodology, published January 2009. Other
methodologies used include Loss Given Default for Speculative Grade Issuers
in the US, Canada, and EMEA, published June 2009.
Delphi Automotive, LLP (DAL), is a supplier of vehicle electronics,
transportation components, integrated systems and modules,
and other electronic technology. Delphi operates globally and has
a diverse customer base, including every major vehicle manufacturer.
Revenues in 2010 were approximately $13.8 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information and confidential and proprietary Moody's Investors
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on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns ratings to Delphi Corporation, Corporate Family Rating at Ba2
250 Greenwich Street
New York, NY 10007