Adient PLC Term Loan B, Senior Secured Notes Rated 'BB-' (Recovery Rating: '2')

NEW YORK (S&P Global Ratings) April 15, 2019--S&P Global Ratings today 
assigned its 'BB-' issue-level rating and '2' recovery rating to Adient PLC's 
$750 million term loan B and $750 million senior secured notes. The '2' 
recovery rating indicates our expectation for substantial (70%-90%; rounded 
estimate: 75%) recovery in the event of a payment default.

Adient is refinancing its $1.2 billion term loan A with the new term loan B 
due in 2024 and new senior secured notes due in 2026. At the same time, it is 
refinancing its $1.5 billion cash flow revolver with a $1.25 billion 
asset-based revolving credit facility. We will not rate the asset-based 
revolver; moreover, we will withdraw the ratings on the existing cash flow 
revolver and term loan A when the refinancing is complete. 

The company is undertaking this refinancing to eliminate its financial 
covenant, include a prepayable component for repayment flexibility, and limit 
near-term maturities and amortization, among other things.


ISSUE RATINGS - RECOVERY ANALYSIS

Key analytical factors
  • Our simulated default scenario anticipates a default in 2023 because of continued weak auto production in Europe and a combination of the following factors in the U.S. auto industry: a sustained economic downturn reducing customer demand for new automobiles; intense pricing pressure brought about by competitive actions by other auto suppliers and raw material vendors; and the potential loss of one or more key customers.
  • We expect these conditions to reduce Adient's volumes, revenue, gross margins, and net income, which would reduce liquidity and operating cash flow. We also assume about $140 million in accounts receivable factoring on an ongoing basis.
Simulated default assumptions
  • Simulated year of default: 2023
  • EBITDA at emergence: $578 million
  • EBITDA multiple: 5x
Simplified waterfall
  • Net enterprise value (after 5% administrative costs): $2.743 billion
  • Valuation split (obligors/nonobligors): 30%/70%
  • Priority claims: $138 million
  • Value available to first-lien debt claims (collateral/noncollateral): $1.103 billion/$0
  • Secured first-lien debt claims: $1.53 billion
  • --Recovery expectations: 70%-90% (rounded estimate: 75%)
  • Total value available to unsecured claims: $540 million
  • Senior unsecured debt/pari passu unsecured claims: $2.085 billion/$427 million
  • --Recovery expectations: 10%-30% (rounded estimate: 20%)
All debt amounts include six months of prepetition interest. Collateral value 
equals assets pledged from obligors after priority claims plus equity pledged 
from nonobligors after nonobligor debt.

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