(The following statement was released by the ratings agency)
--'s credit quality has improved following an increase in light-vehicle production globally, an improvement in the company's product mix, and benefits from cost cuts.
-- We believe the company will be able to maintain its operating margins in line with its historical average, or at a higher level, over the next few years.
-- We are raising our long-term corporate credit rating onto 'BBB+' from 'BBB'.
-- The stable outlook reflects our view that a recovery in auto demand will continue and our anticipation that Autoliv will continue to adhere to a prudent financial policy.
Standard & Poor's Ratings Services said today it raised its long-term corporate credit rating on Autoliv Inc. , the parent company of Sweden-based auto supplier Autoliv group, to 'BBB+' from 'BBB'. The short-term ratings and the Nordic scale rating were affirmed at 'A-2' and 'K-2', respectively. The outlook is stable.
In addition, we raised the senior unsecured debt ratings on the company's $1.1 billion revolving credit facility (RCF) due 2012 to 'BBB+' from 'BBB', and the junior subordinated debt rating on Autoliv's outstanding equity units hybrid to 'BBB-' from 'BB+'.
"The upgrade reflects our view that Autoliv's financial position has improved, supported by the sharp increase in light-vehicle production (LVP) globally, which has led to a substantial improvement in its key credit ratios," said Standard & Poor's credit analyst Werner Staeblein.
For example, in the 12 months ended June 30, 2010, Autoliv's adjusted funds from operations (FFO) to debt was approximately 91.8% compared with 34.8% in 2009, and adjusted debt to EBITDA reached 0.8x after 2.4x in 2009. This follows Autoliv's substantial debt reduction over the past 12 months, along with its increased profitability over the past three quarters.
Boosted by the recovery in auto demand, LVP grew by 39% globally year on year, with North America registering the highest increase at 72% and Europe experiencing relatively weaker growth of 24%. Autoliv's organic growth rates (excluding acquisitions and foreign exchange movements) were stronger than market-average LVP rates in all its main markets, except Europe.
Autoliv's EBIT margins in the first six months of 2010 were 12%, which is substantially higher than its historical average in the high-single-digit territory. Along with increased LVP, we believe Autoliv's margin improvement can also be attributed to a better product mix, benefits from restructuring cost actions, and lower cost of materials. Although we think it unlikely that Autoliv will be able to maintain an LVP growth rate witnessed in the first half of 2010 over the remainder of the year, we believe it will be able to defend margins at least in line with its historical average.
"The stable outlook reflects our view that continuing recovery in auto demand, along with Autoliv's improved market share, will enable it to maintain its operating margins in line with its historical high-single-digit average, if not higher," said Mr. Staeblein. "It also reflects our anticipation that the company will keep a sustained commitment to balancing investments, dividends, and acquisitions in line with an intermediate financial profile." At the current rating level we see headroom to accommodate small to midsize acquisitions and moderate shareholder payments.
We believe that Autoliv will be able to maintain credit measures in line with those we consider commensurate with the 'BBB+' rating, including FFO to Standard & Poor's-adjusted debt of about 40%, debt to EBITDA of about 2.5x, and FOCF to debt of between 15% and 20%.
RELATED CRITERIA AND RESEARCH
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009.
-- Business and Financial Risks In The Automaker Industry, Sept. 25, 2008.
-- Principles of Corporate And Government Ratings, June 26, 2007.