2008-10-14 00:20:04 -
- This is an update to the release that went out earlier today:
Fitch Ratings has affirmed the Issuer Default Rating (IDR) and outstanding debt ratings of Tenneco, Inc. as follows:
--IDR at 'BB-';
--Senior secured bank credit facility at 'BB+';
--Senior secured notes at 'BB';
--Senior unsecured notes at 'BB-';
--Subordinated notes at
'B'.
Fitch has also revised Tenneco's Rating Outlook to Negative from Stable.
The Outlook revision reflects the potential impact of global automotive production cuts on Tenneco's near-term operating performance and leverage. Deep production cuts by domestic manufacturers in Tenneco's major product platforms, as well as a decline in European auto production, are expected to more than offset potential growth in Tenneco's global customer base and products through at least the next several quarters. Cash flow may turn modestly negative during this period, but flexibility in capital expenditures and growth spending should provide Tenneco with the flexibility to limit any near-term cash drains. Over the last several years, Tenneco has consistently improved leverage metrics.
Liquidity remains healthy, with cash of $164 million at June 30, 2008 and available revolving credit capacity of approximately $351 million during Tenneco's seasonally high borrowing period. Despite difficult industry conditions over the past several years, Tenneco has consistently improved leverage metrics through growth in EBITDA, with debt remaining relatively flat. Tenneco appears to have a comfortable amount of room under its 4.0 times (x) leverage covenant, although an inability to ratchet down costs in line with the expected decline in near-term industry production will reduce some of this buffer in 2009 when the covenant requirement steps down to 3.75x. The revolving credit agreement was negotiated in early 2007, and matures in several parts starting in 2012.
Tenneco makes moderate use of short-term securitization facilities in Europe ($96 million at June 30, 2008) and in the U.S. ($120 million at June 30, 2008), with adequate room under its revolving credit facilities in the events that these securitization facilities are no longer available as a result of conditions in the credit and automotive markets. Tenneco has a modestly underfunded pension plan, which due to losses in the equity and fixed income markets in 2008, is likely to require incremental contributions over the near term.
Short-term results for the industry are expected to be dismal given the extended shutdowns among U.S. manufacturers and the decline in global production expected in 2009. Tenneco's cost structure is sufficiently flexible to moderate margin deterioration over this period, and the recent decline in commodity prices should also be a positive for margin performance. Escalating material prices have materially hampered supplier margins over the past several years. Tenneco's capital expenditures have significantly increased in 2008 in order to finance the company's expansion, and a slower pace of investment will likely occur in order to better manage cash flow during the current environment. Tenneco also had a modest amount of acquisition activity which may not recur over the near term.
Over the longer-term, Tenneco's expanding position in the growing emissions segment positions the company well to expand customers and volumes. Tenneco's migration to more technological, value-added products should also support margins. Tenneco has a history of efficient working capital management and manufacturing cost improvements, helping to offset expected cyclical volume declines. Fitch may downgrade Tenneco's ratings if an extended downturn in global automotive production results in Fitch lowering its projections of Tenneco's negative cash flows through 2009 and into 2010.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Mark Oline, +1-312-368-2073 (Chicago)
Nathan Spunt, +1-212-908-0202 (New York)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
