Oct 1 - Standard & Poor's Ratings Services is assigning its 'BBB' issue rating (two notches above the corporate credit rating) and '1' recovery rating to TRW Automotive Inc.'s new $1.4 billion senior secured revolving credit facility maturing Sept. 28, 2017. This facility replaces the company's existing $1 billion revolver due 2014. At the same time, Standard & Poor's said it lowered its rating on TRW's unsecured debt to 'BB' from 'BB+' because of the increased level of secured debt we assume would be outstanding under the new revolver in our simulated default scenario. We revised the recovery rating on the unsecured debt to '5', indicating that we believe lenders would receive modest (10% to 30%) recovery of principal in the event of a default, from '4'. The 'BB+' corporate credit rating on TRW remains unchanged. The outlook remains positive.
TRW's announcement of a $1 billion share repurchase authorization that extends through Dec. 31, 2014, has no immediate effect on the corporate credit rating because we expect the company to take a measured approach to repurchases, to generate about $500 million of free cash flow in the next two years, and for the company's leverage to remain in line with the rating.
The 'BBB' rating on TRW's senior secured credit facility has a recovery rating of '1', indicating our expectation that lenders would receive very high (90% to 100%) recovery in the event of default. The 'BB-' rating on TRW's unsecured convertible notes remains unchanged with a recovery rating of '6', indicating our expectation that lenders would receive negligible (0 to 10%) recovery in the event of a default.
Our rating on TRW reflects our assessment of its financial risk as "intermediate" and its business risk profile as "fair," which incorporate substantial exposure to the highly cyclical, global light-vehicle market. The intermediate financial risk profile reflects the company's moderate financial policy, which has led to permanent debt reduction using discretionary cash flow. The rating also reflects TRW's intentional reduction in financial risk, including debt and pension reduction in 2011, which we believe will better position it to mitigate future volatility in the highly cyclical and competitive auto industry.
For further details, please see the recovery report on TRW to be published following this release on RatingsDirect.
RELATED CRITERIA AND RESEARCH
-- The Global Auto Industry Holds Steady Amid Economic Turbulence, Sept. 19, 2012
-- How S&P Values The U.S. Auto Sector To Arrive At Its Post-Default Recovery Ratings, Sept. 18, 2012
-- Summary: TRW Automotive Inc., May 4, 2012
RATINGS LIST TRW Automotive Inc. Corporate credit rating BB+/Positive/-- New Rating TRW Automotive Inc.
$1.4 bil. sr secd revolving credit fac due 2017 BBB
Recovery Rating 1
Rating Lowered; Recovery Rating Revised
To From TRW Automotive Inc. Unsecured debt BB BB+ Recovery Rating 5 4
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at
. All ratings affected by this rating action can be found on Standard & Poor's public Web site at . Use the Ratings search box located in the left column. (New York Ratings Team)