NEW YORK - (Business Wire) Fitch Ratings upgrades TRW Automotive's senior unsecured notes to 'B-/RR5' from 'CCC/RR6' and assigns a 'B-/RR5' rating to the company's new senior unsecured eight-year notes. Proceeds are earmarked for the reduction of secured term loans and general corporate purposes. Fitch currently rates TRW as follows:
TRW Automotive Holdings Corp.
-- Issuer Default Rating (IDR) 'B'.
TRW Automotive Inc.
-- IDR 'B';
-- Senior secured revolving credit facility 'BB/RR1';
-- Senior secured term loan A facility 'BB/RR1';
-- Senior secured term loan B facility 'BB/RR1'.
Fitch has taken the following rating actions:
TRW Automotive Inc.
-- Senior unsecured notes upgraded to 'B-/RR5' from 'CCC/RR6';
-- Senior unsecured exchangeable notes upgraded to 'B-/RR5' from 'CCC/RR6';
-- New senior unsecured notes 'B-/RR5'.
The Rating Outlook remains Stable. When accounting for planned changes to the capital structure, approximately $2.5 billion of debt is covered by the ratings.
The senior unsecured notes have been upgraded one notch to 'B-/RR5', which implies a recovery in the range of 11%-30%. The upgrade is based on the reduction in secured term loans, as discussed below, which improves the recovery prospects for the unsecured debt. Fitch continues to rate the senior secured facilities (revolving credit facility, Term Loan A, and Term Loan B) 'RR1' which implies a recovery in the range of 91%-100%. Recovery Ratings (RRs) reflect Fitch's recovery expectations under a scenario in which distressed enterprise value is allocated to the various debt classes.
TRW plans to issue $250 million of senior unsecured notes due 2017; the notes will rank pari passu with the existing senior unsecured debt. The terms of the company's amended credit facility state that 50% of net proceeds of unsecured debt up to $300 million must be used for reducing the secured term loans. This basket of debt will include the $250 million of unsecured notes as well as the $258.75 million of exchangeable notes which were issued two days ago. TRW has indicated that the balance of net proceeds will be used for general corporate purposes, which could include additional debt reduction. The term loans were first prepaid when the company used proceeds from an equity offering in August. It should be noted that the company plans to amend and extend its existing bank facility.
In response to TRW's improved credit profile, Fitch recently upgraded the company's IDR (to 'B' from 'B-') and other ratings. For additional details please refer to Fitch's press release discussing TRW's upgrade dated Nov. 16, 2009.
The ratings are supported by the company's strong liquidity, a relatively diverse customer base, a global manufacturing presence, the company's technology-driven products, including products for vehicle safety which tend to offer better margins and opportunities for growth, and a track record of successfully restructuring before and during the global automotive slump. Concerns include Fitch's forecast of negative free cash flow in 2009 and 2010, expected declines in European light vehicle sales in 2010 and some risks to the global economic outlook. TRW generated 56% of its 2008 revenues in Europe, and Fitch preliminarily projects European industry volumes will decline approximately 6%-10% next year.
At the end of the third quarter of 2009, TRW had liquidity of approximately $1.8 billion, which consisted of $474 million in cash and approximately $1.3 billion available on its revolver. Fitch believes that TRW's access to the revolver is further solidified with the reduction of secured debt. The company is required to remain in compliance with a net senior secured leverage ratio through the third quarter of 2011. Prior to TRW's recent actions to lower secured debt, Fitch believed that the company would be able to maintain compliance with the amended ratios, which came into effect in June 2009. Now with less secured debt, Fitch sees additional cushion for the net secured leverage ratios.
TRW has no near-term debt maturities and the revolver extends through 2012. With the issuance of the new unsecured notes, including the new notes and the exchangeable notes, TRW will reduce the amounts due for the term loans maturing in 2013 and 2014. Fitch calculates leverage (total debt to operating EBITDA) for the 12 months ending Oct. 3, 2009 to be 4.0 times (x) which is significantly better than end of the prior quarter when it peaked at 5.7x. Fitch projects that the company should delever to approximately 3.5x or better over the next few quarters.
At the third quarter of 2009, Blackstone owned approximately 39% of TRW.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Kathleen Connelly, +1-212-908-0290 (New York)
Mark Oline, +1-312-368-2073 (Chicago)
