Fitch Downgrades American Axle to 'B'; Outlook Negative

Business Wire, Oct 17, 2008

CHICAGO -- Fitch Ratings has downgraded the Issuer Default Rating (IDR) of American Axle to 'B' from 'B ' and the company's unsecured debt to 'B/RR4' from 'B /RR4'. The rating action reflects further deterioration in production volumes of American Axle's key GM platform resulting from accelerated production shutdowns and the deepening impact of the credit crisis on dealers, leasing activity and retail sales financing. Negative cash flows in the remainder of 2008 and 2009 will be steeper than previously envisioned, and the company's liquidity profile has tightened. American Axle's restructuring of its labor contracts and manufacturing footprint is expected to be completed by the end of the first half of 2009, but the costs of implementation, when combined with operating losses, will require access to its revolving credit agreement which matures in 2010.

At the end of the second quarter, following an 87 day strike, American Axle had $196 million in cash and $572 million available under its unsecured revolving credit agreement. However, the company is likely to violate its leverage covenant at some point over the next six months, and Fitch estimates that American Axle could require $300 million - $350 million in external borrowings debt in order to complete the transition to its new manufacturing and labor model. This will materially increase the company's existing debt load of approximately $858 million as of June 30, 2008. The company's shrunken market capitalization severely limits the company's ability to raise equity-linked capital. American Axle has no other significant maturities until 2010.

Given the current capital market conditions and deterioration in the U.S. auto market, Fitch expects that American Axle will not be able to establish a new revolver, even on a secured basis, in an equivalent size to its existing facility. Fitch expects that a new facility could move to a borrowing-base collateral structure, which would limit the company's borrowing capacity. Primary securitizable assets, include GM receivables and GM-dedicated inventory, are likely to have a reduced collateral value. In the event of a new secured bank agreement, Fitch will review the ratings and could further notch down the ratings on existing unsecured debt.

Over the longer term, Fitch expects that the pickup truck will partially rebound in line with any stabilization and improvement in the housing market. American Axle continues to expand its geographic, customer and product diversification with healthy new business wins, although a lot of this business remains in a start-up phase and will not contribute to operating performance until the second half of 2009. The flexibility and cost reductions provided by American Axle's new labor contract (partially financed by GM) position the company to downsize its cost structure in response to current market conditions. The company should also benefit from modest commodity price relief. Over the longer term, improvement in the company's operating performance and leverage position will be correlated with the ramp-up of the company's international new business wins. Market conditions will also affect pension asset returns, which will likely to require incremental pension contributions over the next several years.

Ratings downgraded:

American Axle & Manufacturing, Inc

--IDR to 'B' from 'B '

--Unsecured debt to 'B/RR4' from 'B /RR4'.

American Axle & Manufacturing Holdings, Inc

--IDR to 'B' from 'B '.

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