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TEXT-S&P comments on Tenneco

(Press release provided by Standard & Poor's)

NEW YORK, July 25 - Standard & Poor's Ratings Services said today that its ratings on Tenneco Automotive Inc. (B/Negative/--) were unaffected by the company's announcement that it earned EBITDA of $97 million in the second quarter of 2002, a 2.1% increase over EBITDA for the second quarter of 2001 and in line with Standard & Poor's expectations, on a 2.5% revenue increase. Earnings drivers included strong North American original equipment (OE) sales (up 12%) and higher aftermarket sales in both North America (up 4%) and Europe (2%). Supporting the sales increases were higher production volumes, improved product mix, pricing improvements, and cost control. However, European OE revenues fell 11%, due to lower production volumes attributed to the timing of new platform launches. Tenneco reduced debt by $86 million in the second quarter of 2002, and gross margin of 21.6% was flat year-over-year.

Challenges arising in both OE and aftermarket segments of the automotive industry, combined with burdensome debt service requirements, have pressured Tenneco's profits and cash flow in recent years. The company has implemented extensive restructuring actions designed to mitigate these fundamental difficulties. However, Standard & Poor's expects intermediate-term credit protection measures to remain low and the debt level to remain substantial. Liquidity is not a near-term concern, given the company's recently renegotiated bank lines. If industry pressures or operating challenges impede the expected improvement in Tenneco's credit protection measures, or inhibit the company's ability to comply with covenants, the ratings are likely to be lowered.