(The following statement was released by the ratings agency)
NEW YORK, Feb 20 - Standard & Poor's Ratings Services said today it assigned its 'BB-' corporate credit rating to transmission and engine component supplier Hilite International Inc. At the same time, Standard & Poor's assigned its 'BB-' rating to the company's proposed $235 million senior secured credit facilities comprised of a $50 million five-year revolver and a $185 million term loan tranche B. Proceeds from the credit facility and term loan are to be used to refinance all of the company's existing domestic and European credit facilities and all of the existing subordinated notes. The outlook is stable.
"The corporate credit rating on Hilite reflects the company's below-average business profile and its aggressive financial position," said Standard & Poor's credit analyst Nancy C. Messer.
Cleveland, Ohio-based Hilite is a Tier II (smaller) supplier of transmission and engine components, including electronic valves, to automotive original equipment manufacturers and Tier I auto suppliers, with the majority of sales in the U.S. or Germany. The company occupies a niche position in the highly fragmented engineered automotive components business; the company's competitors are typically Tier I (large) suppliers for whom valve technology is not a core focus. Since mid-1999, when the current management team acquired Hilite, the company has completed four acquisitions in three countries, expanding sales to $376 million for the year ended Dec. 31, 2002, from $90 million in 1999.
Hilite's below-average business position reflects a highly competitive and cyclical automotive market and a relatively narrow product line. Also, as is typical of automotive industry suppliers, Hilite's customer base lacks diversity, with the top four customers providing more than 50% of revenues for the year ended Dec. 31, 2002, and the top five automobile models accounting for about 30% of total sales. The company has modest geographic diversity, with the vast majority of Hilite's net revenue (78% for 2002) generated in the U.S. and Germany. Hilite is exposed to potentially volatile raw material prices, although this exposure is diversified among steel, plastic, and aluminum. These negative factors are mitigated by the highly engineered nature of Hilite's products, which have a long life cycle (relative to products designed for the interior or exterior of the vehicle) and provide Hilite with the opportunity to earn a return on invested capital higher than would be likely for a commodity product. In addition, growth potential for Hilite's products is underpinned in the U.S. by regulations supporting continued emissions reductions and improved fuel efficiency and in Europe by the growing acceptance of automatic, in lieu of manual, transmissions.
Downside rating risk is mitigated by Standard & Poor's expectation that the company will pursue a disciplined growth strategy and continue to generate free cash flow after capital expenditures for the foreseeable future. Upside rating potential is limited by the cyclical and competitive characteristics of Hilite's operating environment, the company's limited performance record in its current configuration, and the narrowness of the company's product line. 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 www2.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.