(The following statement was released by the rating agency)
NEW YORK, Nov 17 - Standard & Poor's Ratings Services said today that it revised its outlook on TRW Automotive Inc. to positive from stable following the company's announcement that it plans to sell $350 million of equity and use the proceeds to reduce debt. The 'BB' corporate credit rating on Livonia, Mich.-based TRW was affirmed.
The company, one of the world's 10 largest manufacturers of original equipment automotive parts, had total debt (including the present value of operating leases) of about $3.5 billion on Sept. 26, 2003.
The equity offering will modestly reduce TRW's debt leverage and improve cash flow protection, although the company's credit statistics will remain below average. The equity offering will accelerate the expected debt reduction that is incorporated in the current ratings.
"TRW could be upgraded in the next few years if the company continues to report solid operating results and dedicates the majority of its free cash flow (or proceeds from future equity sales) to further reduce debt levels," said Standard & Poor's credit analyst Martin King.
The company's product lines include active safety systems and components in the areas of braking, steering, and suspension; passive safety systems and components such as inflatable restraints (airbags), seat belts, and steering wheels; and other automotive components, such as engine valves, engineered fasteners, and body control systems.
North American and European automotive production is expected to decrease 2%-4% during 2003 because of the uncertain macroeconomic environment and robust sales of the past few years. Vehicle production for 2004 is expected to be relatively flat with 2003 levels. Pricing pressure in the industry is intense, requiring suppliers to continually improve productivity. Although demand is cyclical, TRW's good geographic, platform, and customer diversity should help to reduce earnings volatility. Global sales to the Big Three domestic manufacturers make up 50% of sales, and no customer makes up more than 20% of sales. About 50% of the company's sales are generated outside North America. 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 Credit Ratings in the left navigation bar, select Credit Ratings Actions.