Sept 17 - Fitch Ratings has assigned GKN Holdings Inc’s (GKN) GBP450m 5.375% bond, due in 2022, a senior unsecured rating of ‘BBB-'(EXP). The bond will be issued under GKN’s GBP2bn EMTN programme.
The bond rating is in line with GKN’s ‘BBB-’ Long-term Issuer Default Rating (IDR).
The proceeds of the notes will be used for refinancing existing debt and for general corporate purposes. The notes will constitute direct, unsecured and unconditional obligations of the issuer. The notes will rank equally among themselves and with all other present or future unsecured and unsubordinated obligations of the issuer. The notes will not have specific covenants other than a change of control clause and a negative pledge clause, in respect of present or future debt.
The ratings reflect GKN’s solid financial profile, double-digit EBITDA margins, gross lease-adjusted leverage of around 1.5x, regular funds from operations (FFO)/revenue of over 8%, positive free cash flow (FCF) and management’s commitment to an investment-grade rating.
GKN benefits from its leading position as a manufacturer driveline systems and sintered metals for precision components. It has strong positions in aerospace equipment manufacturing, which will be further boosted via the recent acquisition of Volvo Aerospace. The company also has good exposure to growing emerging markets.
The Stable Outlook reflects Fitch’s expectation that financial metrics - including key measures such as earnings margins, FFO and gross lease-adjusted leverage - will not change significantly in the medium term.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Confirmation of the successful integration of Volvo Aerospace
- Sustained EBITDAR margin of 13% or better (2011: 11.5%)
- Minimum FCF of 2% of revenues or better
- FFO based lease adjusted gross leverage comfortably below 2x, and cash flow from operations to sales of 8.5% or better (2011: 7.9%)
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO based lease adjusted gross leverage increases above 2.5x
- Negative free cash flow
- Further large debt-funded acquisitions and/or aggressive shareholder returns which weaken GKN’s financial flexibility