S&P affirms Delphi , outlook stable
SUNDAY, NOVEMBER 23 1999 5:18 PM EST
(NYSE:DPH)
NEW YORK (Standard & Poor's CreditWire) Nov. 23, 1999-Standard & Poor's today affirmed its ratings on Delphi Automotive Systems Corp. (see list below) following the company's announcement that it is acquiring TRW Inc.'s Lucas Diesel Systems and associated aftermarket business for about $871 million.
The outlook is stable.
Delphi's ratings reflect its significant scope, product breadth, and global diversity, offset by significant customer concentration, high labour costs in North America, cyclical and competitive end markets, and a leveraged capital structure. Delphi is the world's largest supplier of automotive parts, with revenues of $28.5 billion in 1998. The company produces a broad range of products in electronics and mobile communications (includes automotive electronics and audio and communication systems); safety, thermal, and electrical architecture (includes thermal, power, and signal distribution products); and dynamics and propulsion (includes energy and engine management, chassis, and steering products). The acquisition of Lucas Diesel Systems will make Delphi the second-largest producer of diesel fuel-injection systems for light, medium, and heavy-duty vehicles and will bolster the company's business position by enhancing its customer, product, and geographic diversity. Lucas Diesel Systems, which generated $1.1 billion in revenues in 1998 and $148 million of earnings before interest, taxes, depreciation, and amortization (EBITDA), is primarily a European business with a diverse group of customers. It does not currently supply GM, so the addition of this business will help Delphi achieve its goal of reducing its reliance on GM. (Delphi was spun off from GM earlier this year, and GM currently accounts for about 77% of Delphi's revenue base.) The deal is expected to close around year-end 1999 and is expected to be accretive to earnings next year.
Although Delphi is paying cash for Lucas Diesel Systems, pro forma debt to capital is estimated to be about 43%, which is within expectations for the current ratings. Delphi has generated strong cash flow this year, enabling the company to reduce debt leverage and also prefund about $900 million in pension obligations. Cash flow is expected to remain healthy over the near to intermediate term due to continued healthy end-market conditions and ongoing cost-containment efforts. This should enable Delphi to continue using a balanced mix of internal cash and debt to pursue moderate-size acquisitions and investment opportunities to strengthen its business profile without jeopardising its current credit profile. Despite its growth initiatives, Delphi is expected to generate funds from operations to debt in the 30%-35% range and maintain a debt to capital ratio of 40%-50%. Financial risk is heightened by large pension and retiree medical benefit liabilities, although recent and planned contributions should reduce this exposure over time.
OUTLOOK: STABLE
Ratings reflect the assumption that Delphi will be successful in broadening its customer base, improving its cost position, and maintaining a moderate capital structure over the next few years, Standard & Poor's said. -- CreditWire RATINGS AFFIRMED
RATINGS Delphi Automotive Systems Corp.
Corporate credit rating BBB
Senior unsecured debt BBB
Commercial paper A-2 Contact: Lisa Jenkins, New York (1) 212-438-7697 Copyright 1999, Standard & Poor's Ratings Services |
