Moody’s Downgrades Conti’s Long-Term Rating
Moody’s Investors Service has downgraded the long-term rating of Continental AG and its units to ‘Baa2’ following the company’s marked increase in debt and leverage resulting from the 11.4 billion euro acquisition of the Siemens VDO unit. The ratings agency said the downgrade concludes its July 26, 2007 review regarding a possible downgrade following the company’s announcement of the intended acquisition. Moody’s added that the one notch downgrade is in line with its previous announcement of a limited downward revision and takes into account the company’s recent track record of successfully integrating larger acquisitions.
It also takes into account Conti’s strong commitment to rapidly reduce debt levels towards its target of 80 to 100 per cent gearing ratio by 2010, down from 158.3 per cent based on preliminary reported figures for full year 2007, Moody’s said. The ‘Prime-2’ short-term ratings were not placed under downward review and remain unchanged.
The outlook also takes into account weakening economic environment and a sober outlook for the automotive industry (particularly in North America where the company’s exposure has slightly increased as a result of the VDO acquisition), the company’s vulnerability due to reduced North American OE orders, and the potential impact of the weakening US economy upon Europe.