Remy International Inc., a former unit of General Motors that spun off more than 10 years ago, has become an increasingly risky financial bet.
"They are very much at risk if anything goes wrong," says Nancy Messer, a Standard & Poor's credit analyst. By "anything going wrong," she means reversal in business, financial or economic conditions.
"They are no longer in a position where they control things," she says.
On Tuesday, Nov. 15, S&P downgraded Remy deep into "junk" territory with a CCC rating, down from B-. The decision was prompted by fears that the supplier of starters, alternators and hybrid drive systems may not be able to cover its interest expense.
Remy, formerly Delco Remy International Inc., is not alone with speculative ratings. Most auto parts makers have lost their investment-grade ratings.
But those nearing the D for default rating include Remy, J.L. French Automotive Castings Inc., battery maker Exide Technologies and Advanced Accessory Systems LLC.
Leah Campbell, a Remy spokeswoman, did not return telephone calls.
In a Monday, Nov. 14, press release, Remy CEO Thomas Snyder blamed market softness in its electrical aftermarket business and pricing pressures.
S&P is concerned about Remy's weaker-than-expected $11.5 million third-quarter operating cash flow. The company estimates that its 2005 operating cash flow will be about $60 million, well below previous estimates and insufficient to cover interest expense, according to S&P.
The Anderson, Ind., company's shortfalls stem from soft GM production and higher raw material costs. Remy also is suffering from disappointing aftermarket retail sales and the possibility of soft commercial truck sales in 2007.
Citigroup Venture Capital Equity Partners LP controls the company.
Remy posted a nine-month loss of $52.3 million on sales of $909.9 million as of Sept. 30. That compared with a gain of $26.5 million on sales of $795.3 million for the same period in 2004.
Remy's largest customer is GM, at 28 percent of total sales. The company's 1994 spinoff from GM was led by Hal Sperlich, the then-retired president of Chrysler Corp. Remy employs 6,800 workers.
Remy ranks No. 111 on the Automotive News list of the top 150 suppliers to North America with North American original-equipment automotive parts sales of $362 million in 2004.
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