Research Update: Garrett Motion Outlook Revised To Negative On Expected EBITDA Loss And Narrowing Covenant Headroom; Ratings Affirmed

In its 2020 guidance, Garrett Motion Inc. has indicated an EBITDA loss of between $80 million and $100 million, or up to about 17% of total EBITDA in 2019, mainly linked to the expectation of lower demand for autos and higher freight costs, particularly in the first half of this year, amid concerns of the coronavirus outbreak. In addition, we forecast mounting pressure on covenant headroom in the second half of 2020, narrowing headroom to well below 15% in our base case for this year. We are therefore revising our outlook on Garrett to negative from stable, and affirming our 'BB-' long-term issuer credit rating and our ratings on the company's debt. Our negative outlook reflects a potential downgrade if

...- In its 2020 guidance, Garrett Motion Inc. has indicated an EBITDA loss of between $80 million and $100 million, or up to about 17% of total EBITDA in 2019, mainly linked to the expectation of lower demand for autos and higher freight costs, particularly in the first half of this year, amid concerns of the coronavirus outbreak. - In addition, we forecast mounting pressure on covenant headroom in the second half of 2020, narrowing headroom to well below 15% in our base case for this year. - We are therefore revising our outlook on Garrett to negative from stable, and affirming our '##-' long-term issuer credit rating and our ratings on the company's debt. - Our negative outlook reflects a potential downgrade if Garrett does not proactively address the tightening headroom under its maintenance covenant by end-June 2020 or fails to sustainably restore its free operating cash flow-to-debt ratio to above 10% in the next 12-18 months....

Research Update