Research: Rating Action: Moody’s downgrades Grupo Antolin to B3; stable outlook

Frankfurt am Main, September 19, 2022 — Moody’s Investors Service (“Moody’s”) today downgraded the corporate family rating of Grupo Antolin-Irausa, SA (Grupo Antolin) from B2 to B3 and the probability of default rating at B3-PD from B2 -PD. Simultaneously, Moody’s downgraded Grupo Antolin’s senior secured notes from B3 to B2. The outlook remains stable.

“The downgrade was driven by Grupo Antolin’s inability to improve profitability and credit metrics to the extent expected for the B2 rating category, due to a challenging environment for global auto parts suppliers. , especially those with a strong European focus, given cost inflation and moderate pricing power,” said Falk Frey, senior vice president at Moody’s and principal analyst for Grupo Antolin. liquidity profile provides some cushion, but we expect a gradual improvement in operating performance over the coming quarters to support the credit metrics required for the B3 rating category,” continued Frey.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Grupo Antolin’s margin and leverage have been below the requirements of the previous B2 rating category for some time and we do not expect the company to be able to recover these key credit metrics within 12 next 18 months to become more adequate for B2. rating level given the current inflationary environment with high raw material, energy and logistics costs and weakened consumer confidence. Grupo Antolin’s -0.1% EBITA LTM ​​margin is well below the 2.5% to 3.5% range for the B2 rating category. We expect Grupo Antolin to improve its EBITA margin to around 1% at the end of 2022 with little further improvement in 2023.

Additionally, Grupo Antolin burned a significant amount of cash in the first half. Reported FCF was -€29 million in Q2 and -€145 million in the first half of FY22. Negative FCF was driven by weak operating performance and high seasonal working capital investments offset by lower capital expenditure (4.2% of sales versus 5% for 2022). Although management expects a substantial release of working capital in the second half of 2022, Grupo Antolin will burn cash over the next three years in our Moody’s base case.

At the same time, a positive operational impact related to the realization of the negotiated price adjustments should improve the cash generation capacity in the second half. Moody’s notes that Grupo Antolin’s strong liquidity profile provides some protection against moderate negative free cash flow generation over the next few years. However, a rapid turnaround in profitability and free cash flow generation is needed given Grupo Antolin’s highly leveraged capital structure.

The B3 rating balances Grupo Antolin’s (1) strong position in the automotive interior products market, (2) size and scale as a Tier 1 automotive supplier, and (3) adequate liquidity.

The rating also reflects (1) Grupo Antolin’s exposure to the cyclicality of the global automotive industry; (2) a very competitive market environment for interior products, with relatively weak growth prospects and strong pressure on prices, reflected by an EBITA margin of 0.6% in 2021 (breakeven on LTM06 /2022) which was already low in 2019 (1.9%) before -Impact Covid; (3) its high gross leverage of 7.1x in 2021 and 7.4x on an LTM06/2022 basis; and (4) its low free cash flow (FCF), negative by around €150 million over the last five years and negative by €123 million in the first half of 2022, given its high capital expenditure and its low operating margin.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects our expectation of continued progress in Grupo Antolin’s financial turnaround, which should lead to more adequate financial metrics for the B3 rating level in the coming quarters, for example an improvement in the EBIT margin to around 1 % and less than 6x leverage. Nevertheless, in the absence of significant debt maturities, we expect Grupo Antolin’s liquidity profile to remain adequate.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Grupo Antolin’s ratings could come under upward pressure in the event of (1) a sustained reduction in leverage (debt/Ebitda) below 5.5x; (2) an EBITA margin permanently above 2.5%; (3) interest coverage (EBITA/interest expense) well above 1.0x as well as (4) positive free cash flow on a sustainable basis.

The B3 rating could be lowered in the event of (1) Grupo Antolin’s inability to sustainably improve its EBITA margin above 1.0%, or (2) leverage (Debt/Ebitda) remaining above 6, 5x; (3) interest coverage does not materially improve towards 1.0x and (4) a significant negative FCF beyond the double-digit amounts expected for the next two years or (5) a weakening of the liquidity profile of Grupo Antolin.

LIQUIDITY

At the end of June 2022, the company’s cash balance was approximately €273 million, in addition to the availability of its revolving credit facility (RFC) of €194 million with sufficient margin under its maintenance commitments. Net debt/Adjusted EBITDA test levels are gradually tightened from 4.5x (in Q3 2022) to less than 3.5x from Q1 2023.

Grupo Antolin has no major debt maturities until 2025 and only minor amounts of short-term debt come due, most of which are revolving credit facilities that are typically rolled over. Compared to previous assumptions, we expect the group to generate negative free cash flow in excess of €100 million for 2022 and high double-digit negatives thereafter.

LIST OF AFFECTED RATINGS

..Issuer: Grupo Antolin-Irausa, SA

Downgrades:

…. LT Corporate Family Rating, downgraded from B2 to B3

…. Default scoring probability, downgraded to B3-PD from B2-PD

….Senior Regular Secured Bond/Debenture, downgraded from B2 to B3

Outlook Actions:

….Outlook remains stable

MAIN METHODOLOGY

The main methodology used in these ratings is Automotive Suppliers published in May 2021 and available on https://ratings.moodys.com/api/rmc-documents/72204. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

COMPANY PROFILE

Based in Burgos, Spain, Grupo Antolin is a family-owned, tier-one supplier to the automotive industry. It focuses on the design, development, manufacture and supply of vehicle interior components, which include cockpits, ceilings (headliners), door trim, interior lighting and electronic components. In 2021, Grupo Antolin achieved a turnover of almost 4.1 billion euros.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Falk Frey
Senior Vice President
Corporate Finance Group
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Christian Hendker, CFA
Associate General Manager
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Comments are closed.