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Fitch Downgrades TRW's IDR to 'BB-'; Remains on Rtg Watch Negative

  //house-home.news-articles.net/content/2008/12/1 .. w-s-idr-to-bb-remains-on-rtg-watch-negative.html
  Published in House and Home on Thursday, December 18th 2008 at 13:02 GMT by Market Wire
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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has downgraded TRW's (NYSE: TRW) ratings as follows:

TRW Automotive Holdings Corp.

--Issuer Default Rating (IDR) to 'BB-' from 'BB''.

TRW Automotive Inc.

--IDR downgraded to 'BB-' from 'BB';

--Senior secured revolving credit facility to 'BB' from 'BB+';

--Senior secured term loan A facility to 'BB' from 'BB+';

--Senior secured term loan B facility to 'BB' from 'BB+';

--Senior unsecured notes to 'B+' from 'BB-'.

All remain on Rating Watch Negative (where they were originally placed on Dec. 11, 2008). Fitch's rating actions affect approximately $3.2 billion in outstanding debt.

The downgrades are prompted by ongoing weakness in the automotive industry, particularly the significant decline in Europe, which is exhibiting a sharper drop than Fitch previously expected. Europe accounted for 57% of TRW's sales in 2007. Fitch expects global automotive market weakness to continue through 2009. U.S. automotive sales are expected to decline 10.7% to 11.6 million units and Western European production is forecasted to be down 12%-15%. First-quarter 2009 (1Q09) should be the quarter with the steepest decline in sales. The weak auto market could also pressure TRW's cash flow, and margins are being affected, as evidenced by the 1.8% margins in the third quarter versus 4.5% in the year earlier period based on reported segment data. TRW has been working to restructure its operations and adjust to the cuts in auto production, partially offsetting the negative impact of declining production rates. Although the company has weathered the U.S. decline to date, the steep production cuts in the U.S. and Europe in the current quarter and in 1Q09 should outpace the restructuring benefits to the cost structure. The company also benefits from the refinancing actions it took in 2007, which lowered the company's interest costs and extended debt maturities. Additionally, Fitch believes TRW has the ability to decrease capital expenditures in 2009, which may be necessary if cash flows are constrained. Reduced capital expenditures are likely to be offset by cash restructuring costs. Furthermore, Fitch does forecast modest negative free cash flow in 2009 under the current auto production assumptions. Factors supporting the ratings include TRW's relatively diverse customer base, global manufacturing presence, the company's technology-driven products and liquidity position.

The ratings remain on Rating Watch Negative as discussed in the Dec. 11, 2008 Fitch commentary entitled 'Fitch Places Seven U.S. Auto Suppliers on Rating Watch Negative.' As discussed in the aforementioned commentary, the Rating Watch Negative is based on the impact of a potential bankruptcy filing by General Motors (and Fitch's view that this would be followed by a bankruptcy at Ford). Given its smaller profile, it is unlikely that a bankruptcy filing by Chrysler would have the same impact. Industry bankruptcies could result from either the failure of the Detroit Three to receive government financial support, or their failure to develop viable restructuring plans prior to the expiration of any support programs.

In the event of a General Motors bankruptcy, Fitch believes that the resulting contraction in auto production, the supply chain, trade credit and capital access would cause widespread shutdowns and bankruptcies throughout the supply chain. Fitch notes that even if the OEMs avoid bankruptcy, major restructurings of their operations will occur, causing material changes in the operations of their Tier I suppliers. In the event of a GM bankruptcy, Fitch's prospective IDR for TRW could be 'B-'.

TRW's liquidity was ample at the end of 3Q08, totaling nearly $1.7 billion. This liquidity consisted of $511 million of cash, $830 million of availability under the company's revolving credit facility, and $330 million under several receivables securitization facilities. Fitch also notes that 3Q is a seasonally low period for cash due to working capital uses. TRW has no near-term debt maturities and the revolver extends through 2012. Fitch calculates leverage (total debt to operating EBITDA) for the latest 12 months ended Sept. 26, 2008 to be 2.6 times (x), which is considered solid for the current rating, although this metric will likely deteriorate in 2009 due to falling production rates. Fitch notes that if industry conditions worsen through 2009, the company could pressure its leverage covenants. The secured credit facility requires that the leverage ratio be no more than 3.75x as of 4Q08 until 3Q09; from 4Q09 and beyond it may be no greater than 3.5x. Fitch expects lenders would be willing to work with the company to provide covenant relief given TRW's position as a global auto supplier with a diverse customer mix and product offering.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.