Fitch Upgrades TRW's IDR to 'B+'; Outlook Positive

NEW YORK--Fitch Ratings upgrades TRW Automotive's Issuer Default Rating (IDR) to 'B+' from 'B'. Fitch's ratings actions include:

TRW Automotive Holdings Corp.

--Issuer Default Rating (IDR) upgraded to 'B+' from 'B'.

TRW Automotive Inc.

--IDR upgraded to 'B+' from 'B';

--Senior secured revolving credit facility upgraded to 'BB+/RR1' from 'BB/RR1';

--Senior secured term loan A-2 upgraded to 'BB+/RR1' from 'BB/RR1';

--Senior secured term loan B-3 upgraded to 'BB+/RR1' from 'BB/RR1';

--Senior unsecured notes upgraded to 'B/RR5' from 'B-/RR5';

--Senior unsecured exchangeable notes upgraded to 'B/RR5' from 'B-/RR5'.

The Rating Outlook is Positive. Approximately $2.2 billion of debt is covered by the ratings.

Today's ratings actions are supported by TRW's fourth quarter and full year 2009 results, which were better than Fitch anticipated, particularly the healthy free cash flow. Despite a very challenging automotive environment during 2009, TRW was able to improve some credit metrics and reduce debt during the year as a result of successful restructuring actions and several capital market transactions. Furthermore, Fitch's outlook for TRW in 2010 continues to strengthen. Fitch projects increases in profits, healthy cash flow, and further deleveraging of the balance sheet. These drivers are a result of TRW's cost cutting efforts and the improvements in the automotive environment. The ratings are also supported by the company's strong liquidity, a relatively diverse customer base, a global manufacturing presence, the company's technology-driven products, including products for vehicle safety which tend to offer better margins and opportunities for growth, and a track record of successfully restructuring before and during the global automotive slump.

The Positive Outlook is driven by Fitch's view that the company's credit profile will continue to improve, the profile could be strong for the new rating over the next 12 months and further positive ratings actions may be warranted if TRW's favorable operating trend persists and if the industry recovery continues.

Credit concerns include TRW's large concentration of sales to Europe (58% in 2009), exposure to commodities prices which may prove to be a head wind in the second half of 2010, automotive industry cyclicality, and the underfunded pension plan.

Fitch calculates leverage (total debt to operating EBITDA) at the end of 2009 to be 2.6 times (x) which is a slight improvement from leverage of 2.8x at the end of 2008. Importantly, TRW managed to significantly reduce leverage throughout 2009. At the end of the second quarter of 2009, leverage for the trailing 12 months peaked at 5.7x. Fitch projects that the company could delever to approximately 2.3x or better by the end of 2010.

Free cash flow was $254 million in 2009 which was driven by the company's efforts to preserve cash during the difficult automotive environment. Capital expenditures were down 58% to $201 million. TRW forecasts 2010 capital expenditures to be in the range of $300 to $325 million; Fitch believes this forecast may prove to be conservative as expenditures may need to rise to support revenue growth. Even if capital expenditures increase modestly over TRW's projections and with working capital requirements increasing, Fitch expects TRW to generate positive free cash flow in 2010.

While the company's sales are globally diversified, the majority of its sales in 2009 were from Europe and Fitch forecasts that European light vehicle sales will decline in 2010 due to the lack of government incentives to boost vehicle demand; as a result, production volumes are forecasted to slightly decline.

At the end of 2009, TRW's U.S. pension plan was 72% funded (or $306 million underfunded). This is a slight improvement from the 66% funded status at the end of 2008. In 2010, TRW expects to contribute $91 million to global pension plans ($28 million of that is to be directed to the U.S. plan). In addition, TRW expects to contribute $44 million to the OPEB plan in 2010.

At the end of 2009, TRW had approximately $2 billion of liquidity consisting of $1.2 billion of availability on the revolving credit facility and $788 million of cash. Liquidity has increased following the November 2009 equity offering which generated $269 million of net proceeds for debt reduction. There are no significant scheduled debt maturities until 2014.

TRW's revolver was amended and extended in December 2009. It was previously a $1.4 billion revolving credit facility maturing in May 2012. TRW now has a $1,256 million revolver and of that amount, $411 million of commitments expire in May 2012; $845 million will expire in November 2014.

The company's new secured term loans and the 2014 portion of the revolver are subject to an early maturity date of December 2013 if on or before that time, TRW cannot refinance its senior unsecured notes due 2014 with debt maturing after Aug. 31, 2016 or if it doesn't have liquidity available to repay the senior unsecured notes due 2014 and also have additional liquidity of at least $500 million.

Fitch affirms the Recovery Ratings (RRs) and continues to rate the senior secured facilities (revolving credit facility, Term Loan A-2, and Term Loan B-3) 'RR1' which implies a recovery in the range of 91%-100%. The senior unsecured notes are rated 'RR5' which implies a recovery in the range of 11%-30%. RRs reflect Fitch's recovery expectations under a scenario in which distressed enterprise value is allocated to the various debt classes.

At the end of 2009, Blackstone owned approximately 39% of TRW.

Additional information is available at 'www.fitchratings.com'.

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