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NN, Inc. -- Moody's places NN, Inc.'s ratings on review for upgrade, including Caa2 senior secured

·13 mins read

Rating Action: Moody's places NN, Inc.'s ratings on review for upgrade, including Caa2 senior secured

Global Credit Research - 25 Aug 2020

Approximately $850 million of rated debt affected

New York, August 25, 2020 -- Moody's Investors Service ("Moody's") place the ratings of NN, Inc. ("NN") on review for upgrade including Corporate Family Rating (CFR) and Probability of Default Rating at Caa2 and Caa3-PD; and the senior secured credit facilities at Caa2. The Speculative Grade Liquidity Rating is SGL-4.

On Review for Upgrade: ..Issuer: NN, Inc.

.... Corporate Family Rating, Placed on Review for Upgrade, currently Caa2

.... Probability of Default Rating, Placed on Review for Upgrade, currently Caa3-PD

....Senior Secured Bank Credit Facility, Placed on Review for Upgrade currently Caa2 (LGD3)

Outlook Actions: ..Issuer: NN, Inc.

....Outlook, Changed To Rating Under Review From Negative

Speculative Grade Liquidity Rating:

..Issuer: NN, Inc.

.... Unchanged at SGL-4

RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The review will consider NN's expected leverage, free cash flow generation, and industry prospects following the completion of the announced definitive agreement to sell NN's Life Sciences division to affiliates of American Securities LLC. Under the terms of the agreement, the Life Sciences division will be purchased for $825 million, including $755 million (subject to customary adjustments) in cash payable at closing of the transaction and an additional $70 million earnout payable in cash based on the 2022 performance of the Life Sciences division. The transaction is expected to be completed in the fourth quarter of 2020, subject to customary closing conditions.

NN plans to use an estimated $700 million in net proceeds from the sale to pay down its term loan debt resulting in increased financial flexibility and reduced interest costs. The sale of Life Sciences is expected to complete NN's strategic review of its businesses and allow management to focus on the remaining Mobile Solutions and Power Solutions business segments.

The review will consider NN's competitive position and growth prospects in its Mobile Solutions business (with LTM revenues of $251 million) and Power Solutions business ($175 million in revenues. The review will also consider the coronavirus pandemic's negative impact on volumes in the company's end-markets and free cash flow generation. Moody's estimates that pro forma Debt/EBITDA for the LTM period ending June 30, 2020 will decrease to about 6x (inclusive of Moody's adjustments and excluding certain management add-backs) from about 8.8x. Upon completion of the transaction NN's liquidity profile should also improve.

On improving governance, as part of management efforts to support operations, NN bolstered its board of directors with members experienced in advising and valuing strategic alternatives.

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

NN, headquartered in Charlotte, NC, is a diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies for a variety of markets on a global basis. Revenues for the LTM period ending June 30, 2020 were $763 million.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Timothy L. Harrod VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Robert Jankowitz MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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