-- 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.
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.
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 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.
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.
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,
-- 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
Upgraded; Removed From CreditWatch
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