Adient, the planned spin-off of Glendale-based Johnson Controls’ automotive experience business, received a BB+ rating from S&P Global Ratings this week.
The speculative rating is one step below investment grade and indicates a company is less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
“Our preliminary corporate credit rating on Adient reflects the company’s position as the leading provider of seating systems for the global light-vehicle market,” said Lawrence Orlowski, S&P Global credit analyst.
The ratings agency also assigned the company’s senior secured debt a BBB rating and a 1 recovery rating.
“These ratings are in line with our expectation to have high non-investment-grade debt ratings when we list on the New York Stock Exchange in October,” said Bruce McDonald, incoming Adient chairman and chief executive office. “We expect Adient’s leading market position, anticipated earnings growth, and consistent ability to generate cash will enable the company to quickly de-lever its balance sheet and transition to an investment grade company.”
Adient announced earlier this week it had started discussions with lenders to obtain financing ahead of the spin-off. The company, which will be based in London and maintain a corporate office in Milwaukee, plans to secure a $1.5 billion revolving credit facility and $3.5 billion in gross debt, made up of $2 billion in bonds and a $1.5 billion five-year term loan.
S&P noted Adient will have operations in 33 counties, including 17 joint-venture partnerships with Chinese original equipment manufacturers, and deliver 25 million seating systems per year. The rating also noted the company will have long-standing relationships with all the top automotive manufacturers, with the majority spanning more than 20 years.
The agency described the ratings outlook as stable and expects the company to maintain debt-to-EBITDA of less than 4.0x and a free operating cash flow-to-debt ratio of 10 percent.
S&P said it could lower the rating if global vehicle demand begins to decline or OEMs begin pursuing a strategy that puts significant pricing pressures on suppliers.
The rating could increase if the company demonstrates a comfortable resilience to adverse economic conditions over the long-term, including through industry downturns. Adient would also need to increase its profitability and demonstrate consistent program-launch execution before an upgrade, the agency said.