Research Update: Forvia Outlook Revised To Negative On Slower Improvement In Profitability; 'BB' Ratings Affirmed

Forvia's S&P Global Ratings-adjusted EBITDA margin declined to 7.0% in first-half 2024 from 7.9% in 2023, following cost overruns in its interiors division, high restructuring costs, and lower auto production in Europe. We anticipate lower profitability will result in slower-than-expected deleveraging, although the group sticks to its public deleveraging target. We estimate Forvia's adjusted fund from operations (FFO) to debt will improve only slightly, to 12.9% at year-end 2024 from 11.8% in 2023 and could be constrained under 15%, our downside trigger, through 2025 as global auto market conditions remain volatile. We therefore revised our outlook on Forvia to negative from stable and affirmed our 'BB' long-term issuer credit rating and issue ratings on the company and its unsecured debt.

...- Forvia's S&P Global Ratings-adjusted EBITDA margin declined to 7.0% in first-half 2024 from 7.9% in 2023, following cost overruns in its interiors division, high restructuring costs, and lower auto production in Europe. - We anticipate lower profitability will result in slower-than-expected deleveraging, although the group sticks to its public deleveraging target. We estimate Forvia's adjusted fund from operations (FFO) to debt will improve only slightly, to 12.9% at year-end 2024 from 11.8% in 2023 and could be constrained under 15%, our downside trigger, through 2025 as global auto market conditions remain volatile. - We therefore revised our outlook on Forvia to negative from stable and affirmed our '##' long-term issuer credit rating and issue ratings on the company and its unsecured debt. - The negative outlook reflects the potential for a downgrade if Forvia fails to restore FFO to debt above 15% in 2025 while maintaining free operating cash flow (FOCF) to debt above 5%....

Research Update