GLOBAL MARKETS-Dollar hangs on for US healthcare vote, Asia shares muted
* Dollar edges up from recent lows in Asia, outlook uncertain
March 1 - Fitch Ratings has affirmed the ratings of Delphi Automotive PLC (DLPH) and its Delphi Corporation (Delphi) subsidiary at 'BBB-'. In addition, Fitch has downgraded Delphi's secured revolving credit facility and secured Term Loan A ratings to 'BBB-' from 'BBB'. Fitch affirmed Delphi's senior unsecured notes rating at 'BBB-'. Delphi's ratings apply to a $1.5 billion secured revolving credit facility, a $575 million secured Term Loan A and $1.8 billion in senior unsecured notes. The Rating Outlook for DLPH and Delphi is 'Stable'. A full list of ratings follows at the end of this release. Today, DLPH announced that it has amended and extended Delphi's secured Term Loan A and its secured revolving credit facility, increasing the amounts of both and shifting their maturities out by several years. The amended Term Loan A has $575 million outstanding, up slightly from $567 million previously, and a maturity of 2018 versus 2016. Likewise, the secured revolver has been upsized to $1.4 billion from $1.3 billion and the maturity also has been shifted to 2018 from 2016. In conjunction with this transaction, the company used proceeds from its recent $800 million senior unsecured notes issuance to repay all amounts outstanding on its secured Term Loan B. As of Dec. 31, 2012, the Term Loan B had $772 million outstanding. KEY RATING DRIVERS The amended credit agreement covering both the Term Loan A and the revolver contains an automatic collateral release provision that would be triggered upon DLPH receiving an investment-grade rating from certain rating agencies. Prior to this amendment, the credit agreement did not contain such a provision, and, therefore, Fitch rated the secured term loans and revolver one notch above Delphi's IDR. With the collateral release provision now included in the amended agreement, although the conditions required to trigger the release have not yet been met, Fitch has nonetheless downgraded the rating on the secured Term Loan A and the secured revolver to reflect the potential for this provision to be met in the intermediate term, especially as Fitch has already assigned investment-grade IDRs to both DLPH and Delphi. The ratings of DLPH and Delphi reflect the auto supplier's strong competitive position in the automotive electrical, infotainment, safety, powertrain and thermal arenas. The technologically advanced nature of many of its products and its low-cost manufacturing operations, have resulted in relatively strong profitability and solid free cash flow over the past three years. The strength of the company's operations was especially evident in 2012, as the company posted an EBITDA margin of nearly 14% while conditions weakened in several of its key end markets. In addition, DLPH's product portfolio, which emphasizes safety, emissions and communications technologies, has positioned the company to take advantage of important growth trends in the global auto industry. This will help to drive continued top-line growth in above the rate of underlying vehicle production. Other significant rating drivers include DLPH's strong liquidity position, low leverage and limited pension obligations. Concerns include the auto industry's highly cyclical nature, volatility in raw material costs, and DLPH's significant exposure to the European auto market. These concerns are mitigated somewhat by the company's increasing global penetration rates, which has helped to support sales in weaker markets. The company's flexible operating model, which has positioned much of its production capacity in low-cost countries, has also helped to support profitability in the face of slower vehicle production growth in key markets. Like a number of other global auto suppliers, another concern is the mismatch between the location of the company's debt and its revenue generation, with most of DLPH's revenue generated outside the U.S. but virtually all of its debt issued in the U.S. In the case of DLPH, this is currently less of an issue than it is with certain other suppliers, as its incorporation under the laws of Jersey reduces the tax cost of moving cash into the U.S. to support dollar-denominated obligations. In February 2013, DLPH announced that it will begin paying a $0.17 per share quarterly dividend beginning in March 2013. Fitch estimates that, on an annualized basis, the dividend will be a use of cash of about $215 million. Although the dividend will constitute a material use of cash going forward, Fitch expects that DLPH will produce a sufficient level of operating cash flow to absorb the dividend while maintaining a healthy liquidity position. In addition, the company has the ability to reduce its share repurchase activity to maintain liquidity, if necessary. Fitch notes, however, that, because dividends are included in the agency's calculation of free cash flow, Fitch's calculation of DLPH's consolidated free cash flow will be lower going forward to reflect the effect of the dividend. DLPH maintains a relatively strong credit profile. Leverage (debt/Fitch-calculated EBITDA) at year end 2012 was 1.1x, with $2.5 billion in debt and full-year EBITDA (as calculated by Fitch) of $2.2 billion. Free cash flow for the year was $773 million, resulting in a free cash flow margin of 5.0%. Fitch expects free cash flow to remain solidly positive over the intermediate term as operating cash flow more than offsets any increases in capital spending. DLPH's public guidance calls for it to produce cash flow before financing in 2013 of $1 billion, including $750 million of capital spending. The company's liquidity at year end 2012 included $1.1 billion in cash and marketable securities and $1.3 billion in availability on its secured revolver. Short-term debt and current maturities totaled only $140 million at year end 2012, and, following the extension of the Term Loan A, the company has no significant debt maturities until 2018. RATING SENSITIVITIES Positive: Future developments that may, individually or collectively, lead to a positive rating action include: Maintaining leverage below 1.0x; Producing free cash flow and margins that remain above industry average for an extended period; Demonstrating an ability to maintain a strong operational and financial performance through an industry downturn. Negative: Future developments that may, individually or collectively, lead to a negative rating action include: An unexpected sharp decline in global auto production; An acquisition that results in a meaningful increase in long-term leverage; An increase in long-term debt to support shareholder-friendly activities, such as share repurchases or a special dividend. Fitch has taken the following rating actions with a Stable Rating Outlook: DLPH: --Issuer-Default Rating (IDR) affirmed at 'BBB-'. Delphi: --IDR affirmed at 'BBB-'; --Secured revolving credit facility rating downgraded to 'BBB-' from 'BBB'; --Secured term loan rating downgraded to 'BBB-' from 'BBB'; --Senior unsecured notes rating affirmed at 'BBB-'. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 13, 2012); --'Evaluating Corporate Governance' (Dec. 12, 2012); --'2013 Outlook: U.S. Auto Manufacturers and Suppliers' (Dec. 17, 2012). Applicable Criteria and Related Research 2013 Outlook: U.S. Auto Manufacturers and Suppliers Corporate Rating Methodology Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers Evaluating Corporate Governance
* Dollar edges up from recent lows in Asia, outlook uncertain
CHICAGO, March 23 Dallas Federal Reserve Bank President Robert Kaplan said Thursday that trimming the balance sheet is an appropriate step for the future, and the Fed should communicate its plan for doing so clearly and in advance.