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U.S. Farathane, LLC -- Moody's assigns B2 rating to U.S. Farathane's proposed first lien term loan, outlook stable

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Rating Action: Moody's assigns B2 rating to U.S. Farathane's proposed first lien term loan, outlook stableGlobal Credit Research - 01 Mar 2021New York, March 01, 2021 -- Moody's Investors Service, ("Moody's") assigned a B2 rating to U.S. Farathane, LLC's ("USF" or "US Farathane") proposed first lien senior secured term loan due 2024, and upgraded certain ratings including the company's corporate family rating (CFR) to B3 from Caa3 and probability of default rating (PDR) to B3-PD from Caa3-PD. The ratings outlook has been changed to stable from negative.USF's plan to address debt maturities with an announced refinancing is the basis for the CFR upgrade. USF intends to use proceeds from the proposed $308 million first lien term loan along with a new $175 million second lien term loan (unrated) to be used to repay the senior secured term loan due December 2021. Upon close, Moody's will withdraw the Caa3 rating on U.S. Farathane's existing senior secured term loan facility.The following rating actions were taken:Upgrades:..Issuer: U.S. Farathane, LLC.... Corporate Family Rating, Upgraded to B3 from Caa3.... Probability of Default Rating, Upgraded to B3-PD from Caa3-PDAssignments:..Issuer: U.S. Farathane, LLC....Senior Secured Bank Credit Facility, Assigned B2 (LGD3)Outlook Actions:..Issuer: U.S. Farathane, LLC....Outlook, Changed To Stable From NegativeRATINGS RATIONALEUS Farathane's B3 CFR reflects the company's moderately high financial leverage given its exposure to automotive production, modest scale with significant customer concentration and adequate liquidity. US Farathane benefits from its strong capabilities in producing interior and exterior plastic components for light vehicles at good margins relative to peers and its presence on many top selling truck and SUV platforms in the US. The company's high mix towards trucks and SUVs has supported its ability to outperform total vehicle sales for the broader US market, and this trend is expected to continue in 2021 despite first-half production challenges relating to semiconductor chip shortages at automotive manufacturers.US Farathane's EBITA margins are expected to improve in 2021 to above 10% as production volumes increase. However, the company's earnings are susceptible to volatile movements in raw material pricing, specifically resin, as well as increasing labor costs. Moody's anticipates US Farathane to improve its financial leverage, from mid-6x debt/EBITDA at the end of 2020 to below 5x by the end of 2021 should the company effectively manage its cost structure.US Farathane's liquidity profile is adequate, however limited by Moody's expectation for very modest cash and low availability under its $110 million asset-based revolving credit facility due 2023 because of collateral used for the A/R factoring. Over the course of 2020, US Farathane increased its utilization of A/R factoring relationships to support its liquidity, and Moody's expects this funding source to continue. The proposed term loan refinancing includes a resetting of the company's gross leverage covenant, which Moody's expects the company to maintain adequate cushion.The stable outlook reflects Moody's expectation for US Farathane to restore its margin profile to at least 10% EBITA margin and generate sufficient cash flow to support capital investments and required debt service.US Farathane's role in the automotive industry exposes the company to material environmental risks arising from increasing regulations on carbon emissions. The company's product portfolio is relatively agnostic to the drivetrain shift from internal combustion engines to more electrified powertrains, and Moody's expects US Farathane to focus on adequately securing product placement on electrified platforms as they are developed.The proposed first lien B2 rating, one notch above the company's B3 CFR, reflects the repayment priority above the proposed second lien term loan and support provided by unsecured liabilities in the company's debt structure.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if US Farathane is able to improve its liquidity with free cash flow to debt above 7% and a combination of meaningful cash on the balance sheet and revolver capacity to ensure sufficient liquidity to manage in turbulent auto markets. An upgrade could occur if Moody's expects the company to maintain its EBITA margin above 12% and sustain debt/EBITDA below 5x.The ratings could be downgraded if US Farathane's liquidity deteriorates, including weak free cash flow generation and limited revolver availability, or the company is unable to maintain an EBITA margin in excess of 10%. Debt-financed acquisitions or dividend payments to equity owners contributing to debt/EBITDA above 6x and operating weakness as a result of customer or platform losses, production cuts or pricing pressures could also put downward pressure on the rating.U.S. Farathane, LLC, headquartered in Auburn Hills, Michigan, is a manufacturer and supplier of functional black plastic, and interior and exterior plastic components to North American automotive Original Equipment Manufacturers (OEMs). The company operates 18 manufacturing facilities in the United States, Mexico and China. USF's customers include General Motors, Ford, Chrysler and, to a much lesser extent, several other large global OEMs and Tier suppliers. Net sales for the twelve months ended December 2020 was approximately $709 million.The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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_1243406.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. Mike Cavanagh Analyst 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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