Tier 2 automotive supplier Autocam Corp.'s business is highly correlated to new vehicle production and is spread across a number of product applications. Working with major tier 1 suppliers in both Western Europe and North America indirectly gives Autocam exposure to multiple platforms on the Original Equipment Manufacturing (OEM) side, noted Edwin Wiest, v.p. and senior analyst with Moody's Investors Service.
Tier 1 companies are direct suppliers to the OEMs and tier 2 businesses supply products and components to the tier 1 companies. Autocam is affected by the price pressure the OEMs have on their suppliers. "Once you're awarded a contract, they are normally looking for price decreases over the length of the contract," Wiest said. Tier 1 faces the pressure directly and then in turn applies similar pressure to tier 2, he added.
Moody's has assigned a B1 rating to Autocam's new $158 million credit facility, reflecting the company's strong revenue and EBITDA in recent years and management's ability to reduce previous debt levels through internal cash flow generation. The new bank facility comprises a $50 million multi-currency revolver, $33 million "B" loan and E62 million "B" loan. Autocam France SARL will be the borrower for the euro-denominated term loan as well as a borrower under the revolver to hedge the currency of Autocam's cash flows. Borrowings by the French subsidiary will have a down-streamed guarantee from Autocam, Moody's notes.
Proceeds from the facility, along with $140 million of unsecured senior subordinated notes, will be used to back Goldman Sachs Capital Partners', Transportation Resource Partners' and management's $390 million acquisition of Autocam from Aurora Capital Group. Aurora took Autocam private in 2000. A Goldman Sachs Capital Partners spokeswoman declined comment.
The company also has a modest amount of capitalized leases and has increasingly used operating leases to finance its need for sophisticated machine tools. The debt equivalent of the leases adds to the leverage of the capital structure, Moody's adds. Excess cash flow is expected to be used to reduce senior debt over the next 18 months. The revolver is not expected to be notably drawn at closing or during the first year. Warren Veltman, Autocam's cfo, was traveling and could not be reached by press time.
|Other Newly Rated Deals*|
|Fisher Scientific||$800 million||BBB-||S&P|
|Nextel Partners Operating Corp.||$800 million||B+||S&P|
|Readers Digest Association||$437 million||Ba1||Moodys|
|*Thurs, May 20 through Wed, May 26|