TEXT-S&P upgrades Sensata Technologies to 'BB', outlook stable

Thu Dec 20, 2012 10:48am EST

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Overview
     -- The Netherlands-based manufacturer Sensata Technologies Holding N.V.'s
 largest shareholder, Bain Investment Co. S.C.A., sold shares that reduced
its ownership in Sensata to about 45% from about 50%.
     -- We believe Bain's continued exit reduces risks related to Sensata 
pursuing a more aggressive financial policy.
     -- We are raising our ratings on Sensata, including our corporate credit 
rating to 'BB' from 'BB-'.
     -- The stable outlook reflects our expectation that the company will 
maintain good credit measures but that a higher rating is unlikely without 
further significant reduction in Bain's stake in Sensata.

Rating Action
On Dec. 20, 2012, Standard & Poor's Ratings Services raised its ratings, 
including the corporate credit rating to 'BB' from 'BB-', on Sensata 
Technologies B.V. The outlook is stable. We are also removing the ratings from 
CreditWatch, where we placed them with positive implications on Dec. 12, 2012.

Rationale
The upgrade follows the completion of a secondary share offering that reduces 
Bain Capital's ownership of publicly traded Sensata Technologies Holding N.V. 
(the ultimate parent of rated Sensata Technologies B.V.) to less than 50%. We 
believe the offering provides further evidence of the lessening influence of 
Bain on the company's financial policy and supports a one-notch upgrade. The 
ratings on electronic sensors and controls manufacturer Sensata reflect the 
company's "aggressive" financial risk profile and "satisfactory" business risk 
profile. Standard & Poor's believes credit measures will remain consistent 
with the rating, including funds from operations (FFO) to adjusted debt of 
about 20% and adjusted debt to EBITDA of about 3.5x. In 2013, we expect 
Sensata's adjusted EBITDA margin to remain very good at about 29% and revenue 
to increase, benefiting from:
     -- A continued slow global economic recovery, 
     -- Global light-vehicle production growth despite potentially weak 
conditions in Europe, and
     -- The potential to supplement growth through some acquisition activity. 

Sensata, formerly a division of Texas Instruments Inc., consists of two 
business units that manufacture highly engineered electronic sensors and 
controls. Our assessment of the company's management and governance is "fair." 
We expect revenue to approach $2 billion in 2012. The company is significantly 
exposed to the volatility of the global automotive market, which accounts for 
more than half of sales. The European auto market is Sensata's largest single 
exposure, accounting for 25% of 2011 sales, and we believe the region presents 
heightened near-term economic risks. 

However, we expect Sensata to maintain its No. 1 market share in most of its 
products--it is the sole or primary source for most of its customers. Demand 
for its products is increasing at a faster rate than vehicle growth, as sensor 
content per vehicle rises. We do not believe growth prospects are as favorable 
in the controls portion of the business, but this segment does provide 
diversification benefits to the credit profile. The company's global 
manufacturing footprint helps it maintain its low-cost production and leading 
positions. Sensata has good geographic diversification: In 2011, about 65% 
sales were outside of the U.S. We expect its operating margin to remain solid.

Liquidity
Liquidity is "adequate" in our assessment. We take into account the following 
expectations and assumptions:

     -- Sensata's ratio of liquidity sources, including cash and facility 
availability, to uses is likely to exceed 1.2x for the next 12 months.
     -- We expect net sources to remain positive and for the company to have 
sufficient headroom even if EBITDA declined by 15%.
     -- We believe the company has sound relationships and satisfactory 
standing in credit markets.

Near-term maturities are minimal. In May 2011, the company refinanced its 
debt. The company has ample availability under a $250 million revolver that 
expires in 2016 and a $1.1 billion term loan due in 2018. The company also has 
$700 million of senior unsecured notes due 2019. Headroom under a springing 
covenant, setting a maximum 5x senior secured net leverage ratio when the 
revolver is drawn by 10% or more, is likely to remain substantial.

Recovery analysis
The issue rating on the senior secured debt is 'BBB-' (two notches above the 
corporate credit rating), and the recovery rating is '1', indicating our 
expectation that lenders would receive very high (90%-100%) recovery in a 
payment default scenario. The issue rating on the unsecured debt is 'B+' (two 
notches below the corporate credit rating), and the recovery rating is '6', 
indicating our expectation that lenders would receive negligible (0-10%) 
recovery in a payment default scenario. 


Outlook
The outlook is stable. We believe credit measures will remain appropriate for 
the rating at about 20% FFO to debt and 3.5x debt to EBITDA. A further upgrade 
is unlikely until Bain has significantly further reduced its investment in 
Sensata and would depend on our expectation that the company would maintain 
appropriate credit measures for a higher rating. A downgrade is possible if 
results deteriorated such that we expected FFO of about 15% or less and debt 
to EBITDA of 4x or more. This could occur, for instance, if revenue declines 
by more than 10% in 2013, operating margin declines more than 2%, and no debt 
reduction takes place. This scenario would likely require global recessionary 
conditions causing declines in global light vehicle production.


Related Criteria And Research
     -- General Criteria: Methodology: Management And Governance Credit 
Factors For Corporate Entities And Insurers, Nov. 13, 2012
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Credit FAQ: Knowing The Investors In A Company's Debt And Equity, 
April 4, 2006


Ratings List
Upgraded; Removed From CreditWatch
                                        To                 From
Sensata Technologies B.V.
 Corporate Credit Rating                BB/Stable/--       BB-/Watch Pos/--
 Senior Secured                         BBB-               BB+/Watch Pos
   Recovery Rating                      1                  1
 Senior Unsecured                       B+                 B/Watch Pos
  Recovery Rating                       6                  6
 
 

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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