Fitch Affirms TRW Automotive's IDR at 'BB'; Outlook Stable

Business Wire, Sept 28, 2007

CHICAGO -- Fitch Ratings has affirmed the following ratings on TRW Automotive Holdings Corp. and TRW Automotive Inc. (together TRW):

TRW Automotive Holdings Corp.

--Issuer Default Rating (IDR) at 'BB'.

TRW Automotive Inc.

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

--Senior secured revolving credit facility at 'BB ';

--Senior secured term loan A facility at 'BB ';

--Senior secured term loan B facility at 'BB ';

--Senior unsecured notes at 'BB-'.

Fitch's rating actions affect approximately $3 billion in total debt. The Rating Outlook is Stable.

Fitch's ratings reflect TRW's relatively diverse customer base, global manufacturing presence, the company's technology-driven products and healthy liquidity. A substantial book of business outside of North America and continued healthy demand for safety related products partially offsets significant declines in North American OEM customers' volumes as well as industry cost challenges. While the company's margins have declined versus year-ago results, profitability remains above average for an automotive supplier but is at the low end of the credit category.

The Stable Rating Outlook is based on TRW's healthy liquidity position, which should provide the company with a buffer if industry fundamentals were to erode materially. In addition, current credit market conditions should have little direct impact on TRW's liquidity as the company refinanced its bonds in March and its bank facility in May.

Rating concerns include debt levels, margin pressures from price competition and raw materials, customers' production volumes, the potential for increased capital expenditures as customers reduce product cycle times and the risk of work stoppages due to a financially stressed base of suppliers other than TRW. In addition, Fitch expects the company to generate limited free cash flow through at least 2008, enabling only modest debt reduction.

For 2005 and 2006, TRW's Free Cash Flow was $9 million and $54 million, respectively. Given recent margin erosion, the working capital investment of a growing business and average annual capital expenditure increases of approximately 4%, Fitch believes TRW's ability to generate Free Cash Flow is limited through at least 2008. Even though 4% average annual growth in capital expenditures is on par for TRW, capital investment may be subject to increase as D3 customers could succeed in reducing product development cycle times. While this has been a stated objective of the D3 for many years with only limited success relative to the leaps that Japanese competitors have produced (Japanese product life cycles average about 4 years while the D3 average about 6 years), the D3's objective to deliver quality new products more frequently may come to fruition. However, since the company has significant exposure to Toyota, Honda and Nissan, TRW already has experience with more advanced product development cycle times.

Including the premiums from the recent refinancing, Total Adjusted Debt levels have increased slightly versus Fitch's previous expectations. In addition, both coverage and leverage metrics are at the lower end of the rating category. Trailing twelve-month free cash flow was -$157 million, largely due to working capital investment. TRW's Total Adjusted Debt levels over the same period increased by $134 million. However, the company successfully refinanced its entire capital structure in the first half of 2007. Because of the refinancing, but also due to lower Operating EBITDA margin, coverage ratios have improved modestly while leverage ticked slightly higher. Given Fitch's limited Free Cash Flow expectations, debt reduction over the next 18 months is likely to be only modest.

In March of this year, TRW Automotive Inc. replaced its existing senior unsecured and senior subordinated debt with new senior unsecured notes. TRW also replaced $2.5 billion in existing bank facilities with the same amount in new facilities. The new bank lines closed on May 9, 2007. The new capital structure provides TRW with a lower cost of capital, extended maturities, and loosened covenants providing greater financial flexibility.

At the end of the second quarter of 2007, TRW had approximately $1.4 billion of committed availability, including $1.1 billion under its $1.4 billion revolver and $300 million in committed securitization programs. Under TRW's U.S. securitization facility, all $209 million of receivables were eligible and available for funding and there was $127 million outstanding at the end of the quarter. In addition, approximately 122 million euros (EUR) of its EUR155 million programs and all of the 25 million British pounds (GBP) program were available under the European facilities. As of June 29, TRW had nothing outstanding on any of its European A/R programs. Including the cash and marketable securities balance of $284 million, total liquidity at the end of the second quarter of 2007 was approximately $1.7 billion.

As of June 29, the company had $1.3 billion in secured bank debt, $1.5 billion in senior unsecured notes, and $0.2 billion in short term debt, stub debt after tender offers and capital leases, all totaled equaling $3 billion of debt which is nearly unchanged from the year ago period. TRW has no major maturities until 2012. The company was well within its financial covenants at the end of the second quarter.