Moody's Investors is gloomy on suppliers

Moody's Investors Service is negative about the outlook for automotive suppliers. It says most low-rated suppliers face liquidity problems.

The New York credit rating agency says its outlook on suppliers had been declining before Sept. 11. But since the terrorist attacks, consumer confidence in North America and Europe has fallen and investors are avoiding auto-related companies.

"We expect liquidity concerns to be a significant problem for most high-yield (bond) issuers," said Lisa Matalon, Moody's vice president and senior analyst.

Publicly owned suppliers with less than investment-grade ratings are most affected because the bond market investors and banks are shunning the sector, she says.

Consumer confidence key

How do buyers feel?

The key to healthy auto sales in 2002 and, in turn, performance of the auto parts sector, will be consumer confidence, Matalon said.

"The auto parts suppliers that are likely to fare the best over the next year are those which are most diversified in terms of product line, geography and OEM exposure, as well as those which service both the OEMs and the aftermarket," she said.

"Auto parts suppliers with proprietary technology or who operate in growth niches also are likely to perform at a higher level."

Moody's and others issue ratings based on a company's ability to repay debts. Ratings broadly fall into variations of A and B, which investors and lenders consider lower risk, and C, which is considered significantly greater risk.

The lower the rating, the more a company must pay to borrow.

Many auto suppliers have been operating near breakeven and have little room for further cost cutting, Moody's says.

Big 3 downgraded

Among automakers, Moody's recently lowered ratings for Daimler Chrysler, GM and Ford.

But Toyota Finance's relatively high credit was reaffirmed, and Nissan is being reviewed for a potential upgrade.

Hayes Lemmerz was downgraded to C, from Caa2, on $897 million on a series of guaranteed senior subordinated notes.

Valeo was placed on review for possible downgrading on bonds and short-term notes.

Exide Technologies was downgraded on $1.7 billion of debt. Tomkins PLC, of the United Kingdom, was rated Baa2/Prime-2 with a stable outlook on a $1.07 billion note.

You can reach Jesse Snyder at jsnyder@crain.com

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