Research Update: Tupy S.A. 'BB' Ratings Affirmed And Removed From CreditWatch On Tentative Recovery Of Auto Industry; Outlook Negative

We believe Brazilian auto parts producer Tupy S.A. will continue delivering low volume, pressured margins, and higher leverage in 2020 compared with last year as its operations take a hit from the COVID-19 pandemic and subsequent global recession. However, its solid position in the transportation, infrastructure, and agriculture segments, which already show signs of recovery, should support our expectation of increasing EBITDA generation and continued low debt levels in 2021, enabling leverage to trend back to 2x adjusted gross debt to EBITDA by the end of next year. We are therefore removing our ratings on Tupy from CreditWatch with negative implications, affirming our 'BB' global scale and 'brAAA' Brazil national scale issuer credit ratings, and assigning a negative outlook. At

...- We believe Brazilian auto parts producer Tupy S.A. will continue delivering low volume, pressured margins, and higher leverage in 2020 compared with last year as its operations take a hit from the COVID-19 pandemic and subsequent global recession. - However, its solid position in the transportation, infrastructure, and agriculture segments, which already show signs of recovery, should support our expectation of increasing EBITDA generation and continued low debt levels in 2021, enabling leverage to trend back to 2x adjusted gross debt to EBITDA by the end of next year. - We are therefore removing our ratings on Tupy from CreditWatch with negative implications, affirming our '##' global scale and 'brAAA' Brazil national scale issuer credit ratings, and assigning a negative outlook. At the same time, we are removing the '##' issue rating on the senior notes from CreditWatch negative. The recovery rating remains '3' (65%). - The negative outlook indicates that we could lower the ratings...

Research Update