Fitch Assigns Indicative Debt Ratings To TRW Automotive

    CHICAGO--Feb. 5, 2003--Fitch Ratings assigned an indicative rating of 'BB' to the proposed $1.8 billion Senior Secured Credit Facilities, 'B+' to the proposed $1.0 billion Senior Notes Due 2013 and 'B' to the proposed $0.4 billion Senior Subordinated Notes due 2013, to be issued by TRW Automotive Acquisition Corp. to fund Blackstone Group L.P.'s acquisition of TRW Automotive from Northrop Grumman Corp. The ratings reflect TRW Automotive's good revenue diversity by customer, product and geography with historical operating margins in the middle range amongst large global Tier one suppliers and a relatively high degree of financial leverage. The Rating Outlook is Stable.
    While 2002 saw relatively healthy automotive build rates in North America and Europe fueled by the deeply discounted automotive retail market in North America and in Europe, Fitch expects that there is greater downside risk for automotive build rates in 2003. North American build rate is forecasted to be down by mid single digit rates while European build rate is forecasted to be down by low single rates. In addition, Fitch expects that TRW Automotive will continue to face intense pricing pressures in 2003 which will constrain margin improvements. Given the heavy debt load of the pro-forma capitalization and the risk of operating volatilities related to volume cyclicality and other potential cost and pricing headwinds, Fitch expects that 2003 will produce limited cashflow available for debt reduction. While the restructuring and rationalization actions taken over the last several years, along with productivity and other cost saving measures under way could largely offset these cost and pricing pressures, Fitch anticipates that a greater than anticipated volume falloff could necessitate further restructuring and rationalization activities.
    Expected pro-forma capitalization of TRW Automotive at December 31, 2002, showed a high degree of financial leverage with total debt, including $245 million of A/R securitized funding and $600 million of seller notes, amounting to around $3.7 billion or 81% of total debt and equity capitalization. The seller notes are subordinate to all proposed debt and provide for payment-in-kind interest and have a maturity beyond all proposed debt. Fitch conservatively incorporates these notes as debt due to the relevant and increasing portion of the capital structure they represent and the enterprise value accruing to the holders. However, Fitch recognizes that the terms provide meaningful support to the debt senior to it in the capital structure.
    Expected cash EBITDA for 2002 (adjusted to show benefit costs on a cash basis and before cash charges of $33 million) of $989 million amounted to 3.8x the $3.7 billion of total debt. Expected cash EBITDA coverage of projected cash interest expense of the pro-forma capital structure amounts to 3.7x for 2002.
    Following the pro-forma capitalization, TRW Automotive is expected to have good liquidity with $163 million of operating cash (2002 year-end expected) and access to a mostly un-drawn $500 million revolver and $800 million of A/R securitization facility (expected to be about a third utilized at year-end 2002). Principal amortization and/or maturity is expected to be very light for the near to medium term.
    TRW Automotive's overall pension situation is quite manageable with about $80 million of cash funding requirements over the next several years in the smaller and under-funded U.S. and other pension programs while the larger and overfunded U.K. pension program will continue to see pension related accounting income. Due to indemnification agreement with Northrop Grumman, risks associated with significant healthcare care cost increases affecting OPEB expenses are contained.
    As one of the world's 10 largest automotive suppliers, based on 2002 estimated sales of $10.6 billion, TRW Automotive enjoys diverse revenue exposure serving virtually all the major global vehicle manufacturers (Ford, DaimlerChrysler, and GM global revenue exposure amount to just over 50%) from a geographically diversified manufacturing base with a range of products and services in vehicle segments with relatively decent growth prospects. TRW Automotive's businesses are managed along three principal operating segments; Chassis Systems (about 57% of sales) which supplies braking and steering systems, Occupant Safety Systems (about 30% of sales) which supplies airbag systems and seatbelts, and Other Automotive (13% of sales) which supplies engine valves and various other automotive components. Driven by regulatory and/or market dynamics, vehicle penetration of TRW Automotive's key products in active and passive safety systems have been good. Reflecting these dynamics and TRW Automotive's ability to win both incumbent and new vehicle manufacturer program contracts, TRW Automotive shows nearly full book of forward business for the next few years.