TRW Automotive's expected leverage figures of about 4.1 times are on the high side, according to Moody's Investors Service. This is reflected in the Ba2 rating of its $1.81 billion bank deal, which is in syndication. The credit backs the $4.725 billion acquisition of the automotive company from Northrop Grumman by an entity controlled by affiliates of the Blackstone Group. Moody's states that TRW's moderate pro forma EBIT-to-cash interest coverage figures of 2.1 times and weak 5.7% estimated EBIT return on assets are sources of concern. "There's not exciting interest coverage for the amount of debt," said Lisa Matalon, v.p. and senior analyst at Moody's. "Fundamentally, we liked the company, but the capital structure was on the rich side," she added, explaining that TRW needs to display increased cash flow in order to strengthen its credit status.
Matalon noted that TRW's facility rating was notched up one above the Ba3 senior implied rating because of the credit's collateral and guarantee package. Moody's cited protection provided by a combination of direct liens on assets, negative pledges from non-domestic subsidiaries, a security interest on all intercompany notes and little usage expected on the $500 million revolver. Also to TRW's credit, Moody's notes the company's extensive platform and geographic diversity, along with its number one or number two global market shares for the vast majority of its niche product lines. Moody's finds it notable that no single TRW customer accounts for more than 20% of the company's $10.6 billion revenue base. Matalon added that TRW's previous existence as a separate subsidiary should make for a smoother transformation into a stand-alone company.
The facility also includes a $410 million "A" loan due 2009 and a $900 million "B" piece due 2011. The acquisition transaction comprises $3.6 billion in cash, a $600 million seller note payable by TRW Intermediate Holdings and the assumption of a $146 million existing note owed by the Lucas Industries subsidiary. Also, $368 million of Northrop rollover equity will go toward the deal.
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