S&P Rates Venture Holdings Debt, Ratings Also Off Watch
13 May 1999
S&P Rates Venture Holdings Debt, Ratings Also Off Watch
NEW YORK, May 12 -- Standard & Poor's today affirmed its
single-'B'-plus corporate credit rating and single-'B'-minus subordinated debt
rating on Venture Holdings Trust.
Standard & Poor's also lowered its senior unsecured debt rating for
Venture to single-'B' from single-'B'-plus reflecting its subordination to the
company's bank credit facility. All ratings are removed from CreditWatch,
where they were placed March 10, 1999.
At the same time, Standard & Poor's also assigned its single-'B' rating to
the company's $125 million senior notes due 2007 and its single-'B'-minus
rating to the company's $250 million senior subordinated notes due 2009. A
single-'B'-plus rating is also assigned to the company's bank lines, which
consist of a $200 million five-year revolving credit facility; a $100 million
term loan A maturing in 2004; and $150 million term loan B maturing in 2005.
The outlook is positive.
The rating actions reflect the impact of Venture's acquisition of Peguform
GmbH, a German-based manufacturer of plastic automotive components. Venture
is paying about $490 million for Peguform (including fees and expenses). The
combination with Peguform will increase Venture's revenue base and greatly
expand its geographic and customer diversity. However, the acquisition will
also increase the company's financial risk.
Fraser, Mich.-based Venture is a full service manufacturer of molded and
plastic parts for original equipment automotive manufacturers. The company's
primary customers are General Motors Corp. and Ford Motor Co. Venture
produces exterior components (such as bumper fascias, body side moldings,
fenders, and large body panels) and interior components (such as instrument
panel systems, airbag covers, and door panels). Peguform is also a
manufacturer of molded and plastic automotive components, and its primary
products include bumpers, dashboards, and door panels. Peguform sells to most
of the European original equipment manufacturers (OEMs) and its largest
customers are Volkswagen AG and Audi AG. Pro forma revenues for the combined
company will total about $1.9 billion, and over half of the revenues will be
derived outside of North America.
Although the merger with Peguform will bolster Venture's business
position, it also will result in a deterioration in the company's financial
profile. Pro forma debt/capital is about 93% and pro forma debt/adjusted
earnings before interest, taxes, depreciation, and amortization (EBITDA) is
about 4.5x. Adding to the financial risk are significant integration
challenges. Peguform's financial performance is significantly weaker than
Venture's financial performance. While Venture expects to achieve significant
savings over the near to intermediate term as a result of purchasing
synergies, tooling cost savings and other operating efficiencies, the task of
integrating a much larger organization with significant cultural differences
will be a challenge.
The bank facility is rated the same as the corporate credit rating. This
facility is secured by all domestic assets and by the stock of domestic and
foreign subsidiaries. While this facility derives strength from its secured
position, based on Standard & Poor's simulated default scenario, it is not
clear that a distressed enterprise value would be sufficient to cover the
entire loan facility.
OUTLOOK: POSITIVE
If Venture is successful in integrating and improving the financial
performance of Peguform and uses free cash flow to pay down debt, ratings
could be raised, Standard & Poor's said. -- CreditWire