S&P: Rassini S. A.B. de C. V. Upgraded To 'BB' From 'BB-' On Better-Than-Expected Credit Metrics, Outlook Remains Stable
The upgrade reflects Rassini's strong financial performance that has resulted in better-than-expected credit metrics, which led us to revise the company's financial risk profile to intermediate from significant. Rassini's credit ratios have strengthened for five consecutive years, and for the 12 months ended June 30, 2016, the company posted debt to EBITDA of 1.3x and FOCF to debt of 42%. In our opinion, this performance not only stems from the recovery of the U. S. auto industry, but also reflects the company's commitment to a more prudent financial policy. We expect Rassini to maintain solid cash flow generation that will continue to protect its credit metrics. In particular, we expect that the recent 40% capacity expansion of its manufacturing facilities in Puebla will help Rassini capture favorable demand trends in North America through its already booked platforms, which would more than offset the challenging industry conditions in Brazil.
Rassini's weak business risk profile reflects the company's sales limited to very few original equipment manufacturers (OEMs), namely Ford, General Motors, and Fiat Chrysler Automobile, which represent around 75% of supplier's total sales. Moreover, the company remains susceptible to unanticipated swings in the regional automotive industry dynamics, because around 90% of its volume is distributed within the NAFTA markets, and ultimately all of its EBITDA is generated in this region. The business risk profile assessment also considers Rassini's narrow product portfolio range, with approximately 70% of its business is derived from the springs division, while the remainder is in the breaks segment. These factors weigh on our assessment and represent a key ratings constraint.
Rassini's intermediate financial risk profile incorporates our view that the company's growth will continue to be driven by the long-term relationship with key OEMs, which would remain the main source of new contracts in the medium term. In addition, our financial risk profile assessment reflects our view that the company won't engage in potential investments that could result in a significant increase of debt levels.