(The following statement was released by the rating agency)
NEW YORK, Nov 27 - Standard & Poor's Ratings Services said today that it assigned its preliminary 'BBB' senior unsecured debt rating and its preliminary 'BBB-' subordinated debt rating to Delphi Corp.'s $2 billion shelf registration.
At the same time, Standard & Poor's affirmed its 'BBB' corporate credit rating on the automotive supplier. On Sept. 30, 2002, Troy, Mich.-based Delphi had total debt of about $3.5 billion. The outlook remains negative.
Delphi, previously a wholly owned subsidiary of General Motors Corp. (GM) (BBB/Stable/A-2), is the world's largest independent supplier of automotive parts, with about $27 billion in annual revenues. Delphi produces a broad range of products in electronics and mobile communications, safety and interior systems, and dynamics and propulsion.
Delphi benefits from a value-added product portfolio, advanced engineering resources, technological expertise, and global presence. However, a number of risks include a significant, albeit declining, reliance on GM--about 65% of its sales; high labor costs relative to other suppliers; pricing pressure; significant pension and retiree health benefit liabilities; and the costs of restructuring initiatives. Delphi is pursuing a customer diversification strategy that should gradually reduce its reliance on GM.
Delphi's mounting pension liabilities have reduced its financial flexibility. Delphi's underfunded pension obligation could balloon further if the company lowers its discount-rate assumption to reflect current market conditions or if 2003 labor union contract negotiations result in increased employee benefits. Even if asset values improve, Delphi's minimum funding requirements are likely to be significant over the next three years.
"Delphi has limited additional debt capacity at the current rating. Further deterioration of the company's pension funding status, a decline in cash flow generation, weaker market conditions, or a significant debt-financed acquisition could result in a downgrade," said Standard & Poor's credit analyst Martin King.
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.