Fitch Downgrades American Axle & Manufacturing to 'BB'; Outlook Negative

CHICAGO--March 9, 2006--Fitch Ratings has downgraded the Issuer Default Rating (IDR) and senior unsecured credit rating of American Axle & Manufacturing Holdings, Inc. (AXL) to 'BB' from 'BBB-'. The Rating Outlook is Negative.

Fitch's rating action reflects the risks associated with AXL's substantial dependence on General Motors (GM; rated 'B' by Fitch, Rating Watch Negative), which accounted for 78% of AXL's 2005 revenue. Fitch's view is that lower production levels and elevated risks associated with GM production over the next several years, as GM enters a critical restructuring period, have the potential to pressure revenues and margins at AXL. Although AXL continues to add non-GM business at a solid pace, consolidated financial results will remain dependent on GM production levels.

Fitch has also factored in the potentially higher debt levels that could result from a work stoppage at GM or changes to payment terms. The rating also reflects Fitch's view that in any long-term scenario, GM would continue to manufacture passenger trucks in volume due to the comparative profitability of these product lines. AXL is a critical supplier for these products, being the complete driveline integrator for the GMT900 platform, which includes all of GM's large pickups and full-size sport utility vehicles (SUV). The Negative Outlook incorporates Fitch's expectation that GM will continue to experience revenue pressure, operating losses, production uncertainties, declining liquidity (potentially supplemented by the sale of a controlling interest in GMAC), and a financially stressed base of suppliers other than AXL.

Fitch recognizes that in 2005, despite the erratic production levels of GM passenger trucks and a transition to the GMT-900 series, American Axle was able to maintain investment-grade credit metrics, albeit slightly weaker versus the end of 2004. The production volume of GM vehicles on which AXL has content was down 12.6% for the year while AXL sales were down only 5.9% from 2004. However, due to the reduced volume and erratic production schedules, full-year 2005 EBITDA was $290 million versus $456 million a year ago. Free cash flow was negative $56 million, down from a positive $157 million in 2004, partially due to working capital and higher levels of capital expenditures. Although AXL should benefit from the rollout of the GMT-900 series of products, production uncertainties remain over the intermediate term. Total adjusted debt at the end of 2005 was $736 million, up $43 million from $693 million at the end of 2004. As a result, operating EBITDA-to-gross interest expense dropped from 14.6 times (x) to 10.7x, total debt-to-operating EBITDA grew to 1.7x from 1.0x, and total adjusted debt-to-operating EBITDAR increased to 2.3x from 1.4x at the end of 2004. Without the risks associated with AXL's substantial reliance on GM, the credit metrics would support an investment-grade rating.

AXL's strengths include a highly disciplined manufacturing operation with healthy margins, a strong management team that has allowed the company to remain profitable despite its customer and product focus, and its comparative financial strength versus competitors, which could benefit its ability to win business. Over the longer term, AXL could also benefit from commodity price relief.

Fitch expects the company to have breakeven to slightly positive free cash flow in 2006, in a scenario that anticipates a continuing steady decline in GM production. Fitch also expects a slight improvement in leverage and coverage ratios in this scenario, which also assumes a $40 million cash contribution to the pension and exercise of $106 million in lease purchase options. Fitch also recognizes that capital expenditure levels remain flexible.

Due to a substantial amount of booked new business, AXL's revenue should stabilize beyond 2006, allowing AXL to maintain the strength of its balance sheet in the absence of any adverse developments at GM. AXL has grown its backlog of booked new business to $1.4 billion for 2006 through 2012, providing some assurance of future sales growth even under a stress scenario which includes a decline in North American industry production of 10% in 2006, flat industry builds thereafter, and a significant reduction in demand for GM's full-size SUVs. Over half of AXL's backlog is represented by GM business as the company increases its content per vehicle on programs to which it is the incumbent supplier, e.g., the GMT900. The rest of AXL's backlog comes from customers including DaimlerChrysler, Nissan, Ssangyong, Audi, Hino (Toyota supplier), Jatco (Nissan supplier), Koyo (Toyota supplier), and others. AXL also has $1 billion in new business quotes underway, substantially all of which is non-GM, and 30% is transplant business.

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