Form Technologies LLC Rating Lowered To 'CCC' On Operating Performance And Refinancing Risk; Outlook Negative

  • Form Technologies LLC has continued to experience weaker-than-expected revenues, primarily due to low global auto production rates.
  • Demand for Form's products is likely to significantly decline or be delayed in the near term, due potential impacts stemming from the coronavirus outbreak and global macroeconomic weakness.
  • As a result, we are lowering our issuer credit rating on Form to 'CCC' from 'B-'.
  • At the same time, we are lowering our issue-level rating on the company's first-lien debt to 'CCC' from 'B-' and our issue-level rating on the company's second-lien debt to 'CCC-' from 'CCC+'.
  • The negative outlook reflects an increased risk that the company's operating performance will remain pressured, resulting in elevated leverage for at least the next 12 months. As a result, we believe the company could breach the financial covenants on its revolver.
CENTENNIAL (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above.
Form Technologies LLC's leverage increased significantly in 2019 due to weak global auto production.  In our opinion, this trend will further worsen in 2020 due to the effects of the coronavirus. We are projecting that global light-vehicle sales will decline 15% in 2020 (see "COVID-19 Will Batter Global Auto Sales And Credit Quality," published March 23, 2020). The auto end market makes up about 40% of Form's sales. We also anticipate a decline in demand within the oil and gas end market, which will further hurt the Signicast segment. In our view, OptiMIM's new programs will continue to be delayed as general spending pulls back. In our view, the lower demand for Form's products could raise adjusted debt to EBITDA to over 10x in 2020.
The negative outlook reflects at least a one-in-three chance that we could lower the rating over the next 12 months due to weak demand for Form's products. We believe this could result in very high leverage and liquidity issues with respect to its covenants and refinancing needs.
We could lower our rating on Form if weaker-than-expected operating performance results in a clearer path to default over the next six months. This could occur if we believe a covenant breach is inevitable and that Form has no prospects to attain a waiver or amendment. We could also lower our rating if Form does not make progress toward refinancing its cash flow revolver due 2021, increasing the likelihood of a potential distressed restructuring default.
We could raise the rating on Form if the macroeconomic environment improves such that the company can address near-term liquidity concerns and take steps to address near-term maturities.
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