Research Update: ZF Friedrichshafen Outlook Revised To Stable From Negative On Deleveraging Prospects Despite Supply Chain Disruptions

Auto supplier ZF Friedrichshafen AG is pursuing its efforts to deleverage its balance sheet following the debt-funded acquisition of Wabco in 2020, which should lead to a funds from operations (FFO)-to-debt ratio to above 20% in 2022 from about 18% in 2021. In addition, ZF's end market diversity and supportive financial policy should mitigate operating risks linked to incremental supply chain disruption from Russia's military intervention against Ukraine and persisting inflation, and ensure that the company's discretionary cash flow (DCF) to debt sustainably exceeds 5%. We revised our outlook to stable from negative and affirmed our 'BB+' long-term issuer credit rating on ZF; we also affirmed our 'BB+' issue rating and '3' recovery rating on ZF's unsecured debt. The stable

...- Auto supplier ZF Friedrichshafen AG is pursuing its efforts to deleverage its balance sheet following the debt-funded acquisition of Wabco in 2020, which should lead to a funds from operations (FFO)-to-debt ratio to above 20% in 2022 from about 18% in 2021. - In addition, ZF's end market diversity and supportive financial policy should mitigate operating risks linked to incremental supply chain disruption from Russia's military intervention against Ukraine and persisting inflation, and ensure that the company's discretionary cash flow (DCF) to debt sustainably exceeds 5%. - We revised our outlook to stable from negative and affirmed our '##+' long-term issuer credit rating on ZF; we also affirmed our '##+' issue rating and '3' recovery rating on ZF's unsecured debt. - The stable outlook reflects ZF's commitment to reduce its leverage such that its FFO-to-debt ratio increases to above 20% in the next 12 months despite rising input costs and supply chain disruptions....

Research Update