Research Update: Garrett Motion Inc. Ratings Affirmed At 'BB-'; Outlook Stable

We expect that the structural decline in the share of diesel cars, coupled with a softening commercial vehicle market ,will continue to constrain turbocharger manufacturer Garrett Motion Inc.'s EBITDA margin over the next 12 months, contracting toward 16% in 2019-2021 from 18%-19% in 2017-2018. We assume that Garrett will report weaker debt-to-EBITDA and funds from operations (FFO)-to-debt ratios in 2019 and 2020 compared with our anticipations at 3.5x-4.0x and 21%-22%. However, we expect that its free operating cash flow (FOCF)-to-debt will stay solid for the rating, at 13%-14%, thanks to the company's low capital expenditure (capex) needs. We are therefore affirming our 'BB-' long-term issuer credit rating on Garrett's, our 'BB-' issue rating on the company's senior secured facilities, and

...- We expect that the structural decline in the share of diesel cars, coupled with a softening commercial vehicle market ,will continue to constrain turbocharger manufacturer Garrett Motion Inc.'s EBITDA margin over the next 12 months, contracting toward 16% in 2019-2021 from 18%-19% in 2017-2018. - We assume that Garrett will report weaker debt-to-EBITDA and funds from operations (FFO)-to-debt ratios in 2019 and 2020 compared with our anticipations at 3.5x-4.0x and 21%-22%. - However, we expect that its free operating cash flow (FOCF)-to-debt will stay solid for the rating, at 13%-14%, thanks to the company's low capital expenditure (capex) needs. - We are therefore affirming our '##-' long-term issuer credit rating on Garrett's, our '##-' issue rating on the company's senior secured facilities, and our 'B' issue rating on Garrett's unsecured notes. - The stable outlook reflects our view of the company's solid free operating cash flow generation of more than $300 million over 2019-2021...

Research Update