UC Holdings Inc. Ratings Placed On CreditWatch Negative Due To Coronavirus-Related Production Disruption

  • We expect the spread of the coronavirus to sharply reduce the demand for autos and their production globally. Nearly all manufacturers across North America and Europe have curtailed auto production for multiple weeks.
  • We believe UC Holdings Inc.'s (doing business as Aludyne Inc.) operating results will be weaker than we previously expected, causing the cushion in its credit metrics to deteriorate from the relatively solid position before the pandemic.
  • S&P Global Ratings is placing its ratings, including its 'B' issuer credit rating on the company, on CreditWatch with negative implications.
  • The CreditWatch placement indicates the increased risk production shutdowns might extend beyond our current base case and that the demand for light vehicles in 2020 might not recover in line with our base case after the pandemic. We plan to resolve the CreditWatch when we can assess the magnitude of the coronavirus' effect on the company's financial condition.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above.
Aludyne's revenue, profit, and cash flow will contract significantly due to the decline in global auto production related to the shutdown of most customer plants in North American and Europe.  We now expect global light-vehicle sales to decline by almost 15% in 2020 and believe Aludyne will find it difficult to sustain its recent operating performance into 2020 and 2021. While the company might cut its costs to soften the blow, it will not likely be able to reduce its costs nearly fast enough to adjust to the shock from the pandemic. Even before the pandemic, the likely slowdown in global automotive markets, along with the end of some customer programs in 2019, would have led to weaker performance relative to our previous expectations (of more than 12.5%) because EBITDA margins fell about 190 basis points year over year to 11% in the first nine months of 2019.
The CreditWatch placement indicates the increased risk production shutdowns might extend beyond our current base case and that the demand for light vehicles in 2020 might not recover in line with our base case after the pandemic. We plan to resolve the CreditWatch when we can assess the magnitude of the coronavirus' effect on the company's cash flow and liquidity over the next two months.
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