Fitch Affirms TRW Automotive Holdings, Inc's IDR at 'BB'; Outlook Remains Stable

Business Wire, Sept 25, 2006

CHICAGO -- Fitch Ratings has affirmed the ratings of TRW Automotive Holdings Inc. (NYSE: TRW) as follows:

-- Issuer Default Rating (IDR) 'BB';

-- Senior secured bank lines 'BB ';

-- Senior unsecured notes 'BB-';

-- Senior subordinated unsecured Notes 'B '.

Fitch's ratings reflect TRW's strong diversity of OEM customers and geographies, and the company's technology-driven products that have allowed the company to weather an onerous industry environment. Despite significant production cutbacks by North American manufacturers and industry cost challenges, TRW's operating efficiency, a substantial book of business outside of North America and continued healthy demand for TRW's products has sustained margins through the industry turmoil. The company's margins remain at the high end of the supplier industry, providing a buffer in the event of further deterioration in industry fundamentals. Even in an adverse economic and industry scenario through 2007, Fitch expects TRW to remain safely cashflow positive, although debt reduction could be limited in such a scenario. The Rating Outlook is stable.

TRW's operating performance, balance sheet and credit metrics have remained stable in an industry environment that has precipitated several supplier bankruptcies due to price erosion, increased commodity costs, volatile OEM production cadences and lower OEM unit volume on market share losses. The company has been able to avoid the perils faced by many suppliers due to its lower relative dependence on the North American operations of Ford and General Motors, geographic diversity by which nearly two-thirds of total revenue is generated outside of North America, and product line-up of safety components and fuel-saving technologies which continue to see strong demand.

At the end of 2Q06, the company had $1.6 billion in secured bank debt, $1.0 billion in senior unsecured notes, $0.3 billion in senior subordinated unsecured notes and $0.1 billion in short term debt and capital leases, totaling $3.0 billion of debt. Less $520 million of cash and marketable securities, net debt was $2.5 billion, representing a decrease of $45 million compared to year-end 2005. The change in net debt includes a premium paid of $57 million related to the tender for GBP94.6 million in 10-7/8% bonds from its Lucas Industries Limited subsidiary. On a total adjusted debt basis, the 2Q06 debt level was $3.7 billion down $0.2 billion compared to $3.9 billion at year end 2005. TRW was well within its covenant agreements on capital expenditures, Interest Coverage and Leverage.

At the end of 2Q06, TRW had approximately $833 million of availability under its revolver after $67 million in outstanding LOCs. Under the US securitization facility, approximately $233 million of receivables were eligible for borrowings and only about $121 million would have been available for funding. In addition, approximately EUR119 million and GBP25 million were available under the European facilities. As of June 30, TRW had nothing outstanding on any of its A/R programs. Including the cash and marketable securities balance of $520 million, total availability at the end of 2Q06 was approximately $1.7 billion.

While TRW's customer base and manufacturing footprint are one of the more diverse in the Fitch supplier universe, the company is not completely immune to changes in its larger customers' production schedules. However, sales to customers other than Ford and General Motors accounted for more than 70% of 2005 revenues. Clearly demonstrating limited exposure to the domestic OEs, despite 4Q06 production cuts of 21%, 12% and 10% for Ford, GM and Chrysler Group, respectively, TRW reduced its Street guidance to a full year revenue range of $13.0 to $13.2 billion, down from a range of $13.0 to $13.3. The less than 1% reduction in the top end of revenue guidance resulted in a 5% to 6% reduction in the range of forecasted net income or roughly $10 to $16 million.

Government continues to pressure the industry for increased vehicular safety. TRW manufactures the type of safety components and systems which have been the focus of recent legislation. For example, the Alliance of Automobile Manufacturers and the Insurance Institute for Highway Safety announced 'voluntary performance criteria' in front-to-side collisions. The criteria includes the use of a wide range of occupant protection technologies and designs which affect front structural components, side air bags, air bag curtains and side-impact structures. By September 1, 2007, 50% of all vehicles sold by a manufacturer in the U.S. are supposed to meet the front-to-side performance criteria, and by September 2009, manufacturers are to be 100% compliant. In another example, NHTSA has mandated direct tire pressure monitoring systems, capable of detecting under-inflation. The phase-in period begins with 20% compliance of all vehicles sold from October 5, 2005 to August 31, 2006, then 70% from September 1, 2006 to August 21, 2007; and then all vehicles thereafter. Finally, in September NHTSA proposed a rule at the direction of congress that outlines a federal mandate that all new vehicles be equipped with electronic stability control by the 2012 model year. NHTSA studies have indicated a dramatic reduction in crashes for vehicles equipped with ESC.