Message #21 From:
Stock News Bot Date: February 22, 2007 08:09:00 AM
AXL News Fitch Affirms American Axle's IDR at 'BB'; New Notes 'BB'; Outlook Still Negative
CHICAGO--(BUSINESS WIRE)--Fitch has assigned a 'BB' rating to American Axle & Manufacturing's (NYSE: AXL) new senior unsecured notes due 2017. Fitch has also affirmed AXL's existing ratings as follows:
--Issuer Default Rating (IDR) 'BB';
--Senior unsecured bank facility 'BB';
--Senior unsecured 'BB'.
The Outlook remains Negative. Including the new issuance, the ratings cover approximately $972 million of debt.
Fitch's affirmation reflects the risks associated with AXL's dependence on General Motors (Fitch IDR 'B'; Watch Negative) for roughly 75% of its total revenue and in particular, GM's passenger trucks which compete in segments that will remain under pressure in 2007. Partially offsetting these risks are AXL's margin performance, solid liquidity, competitive position, the financial benefits of recent headcount reduction, and an expected improvement in free cash flow in 2007. Free cash flow over the next several years will benefit from recent restructuring activities and reduced capital expenditure (cap ex) levels following an extended period of higher costs associated with the launch of GM's GMT900 trucks and international growth initiatives. The new business backlog with customers other than GM continues to grow.
The Negative Outlook reflects the credit condition of AXL's largest customer, critical labor negotiations later this year between GM and the United Auto Workers (UAW) union, a financially stressed base of suppliers other than AXL, and the uncertain sustainability of large pickup truck production volume in light of a slump in new home construction. In addition, the uncertainty related to large sport utility vehicle (SUV) volumes and consumers reaction to fuel prices. Fitch could revise the Outlook to Stable if GM's production outlook stabilizes or AXL's free cash flow materially improves in 2007, providing increased cushion against the uncertainty of the factors listed above.
Fitch has also assigned a rating of 'BB' to AXL's new senior unsecured bonds due Feb 2017. The issuance capitalizes on favorable capital market conditions and supplements AXL's liquidity position through an uncertain 2007 industry environment. Fitch anticipates that, in the absence of any labor disruptions at AXL's largest customer, issuance proceeds would be used to keep revolver capacity available with the balance held in cash. Axle will likely use the cash on the balance sheet instead of the revolver to handle mid-period working capital requirements during the year. Upon resolution of GM/UAW contract negotiations, Fitch expects to see a reduction in total debt. A 'Change In Control' clause is included in the new issue terms.
Despite a 12.7% decline from 2005 to 2006 in GM light truck sales, AXL 2006 revenue was off 5.8% from $3.4 billion to $3.2 billion. The offsets to the decline in GM's truck sales include AXL's business with customers other than GM and higher content on the new GM SUVs and large pickups. However, lower volumes and higher launch costs brought adjusted operating income down from $105 million last year to $52 million for 2006. Free cash flow was a use of $132 million versus a use of $56 million a year ago primarily due to the special attrition program payments but also higher than normal cap ex related to the launch of the new GM products. To fund operations, the Special Attrition Program, other attrition programs and $37 million in lease buyouts, the company's total debt rose to $672 million in 2006 from $489 million last year. Liquidity at the end of 2006 consisted of $14 million in cash and marketable securities and $476 million in available revolver. The company also has availability under uncommitted and foreign lines of credit totaling $27 million and $92 million, respectively.
AXL has maintained its financial discipline through a period of heavy investment and in the midst of difficult industry conditions. While many suppliers have chosen to take advantage of attractive secured financing arrangements, AXL's funding has remained unsecured. AXL's credit metrics are healthy for the current rating, but AXL's credit profile is currently constrained by the company's dependence on GM, exposure to light trucks, and negative free cash flow over the past two years. For 2006 AXL's Total Debt to Operating EBITDA was 2.6x, Total Adjusted Debt to Operating EBITDAR (adjusted for rent)was 2.9x, and FFO Adjusted Leverage was 3.4x.
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.
