Schaeffler AG's Recovery Rating Profile - Standard & Poor's
Schaeffler AG's Recovery Rating Profile - Standard & Poor's Schaeffler AG's Recovery Rating Profile - Standard & Poor's
Recovery Report: Schaeffler AG's Recovery Rating Profile Overview • We are providing our recovery analysis on German automotive component and systems and industrial bearings manufacturer Schaeffler AG, the borrower of the senior credit facilities, and Schaeffler Finance B.V., the finance vehicle and issuer of the senior secured notes. • We used a going-concern approach in our valuation of Schaeffler AG, owing to our view of its strong brand name and leading positions in certain automotive-component and industrial bearings segments. • Our simulated default scenario assumes a payment default in 2015, due to significant deterioration in operating performance and reduced free cash flow generation triggered by the group's inability to refinance its syndicated facility B maturing in January 2015. • Under our assumptions, we arrive at a stressed enterprise value of about €7 billion, resulting in a recovery rating of '3' corresponding to meaningful (50%-70%) recovery prospects for the €2 billion equivalent senior secured notes and €1.4 billion equivalent facility C2. Table 1 Schaeffler AG Credit Profile Corporate credit rating B/Positive/-- Estimated gross enterprise value at default (Mil. €) 6,935 Year of default 2015 Facility/issue Restricted group Schaeffler AG Senior secured Outstanding principal at default (Mil. €) Issue rating Recovery rating Expected recovery (%) Maturity Facility B 3,000 NR NR N/A 2015 Facility C1 600 NR NR N/A 2017 Facility C2 (euro and dollar tranches) 1,400 B 3 50-70 2017 RCF 1,000 NR NR N/A 2015-2017 Schaeffler Finance B.V 7.75% Senior secured euro notes 800 B 3 50-70 2017 7.75% senior secured dollar notes 600 B 3 50-70 2017 8.75% Senior secured euro notes 400 B 3 50-70 2019 8.50% Senior secured dollar notes 500 B 3 50-70 2019 Unrestricted Group Schaeffler Verwaltungs GmbH Junior term loan facility* c.3700† NR NR N/A 2017 Junior zero coupon bond§ c.2600† NR NR N/A 2018 Standard & Poors | RatingsDirect on the Global Credit Portal | April 17, 2012 2 958466 | 300374394
Table 1 Schaeffler AG Credit Profile (cont.) Schaeffler Holding GmbH&Co. KG Junior RCF 250 NR NR N/A 2017 Ratings as of March 30, 2012. RCF--Revolving credit facility. NR--Not rated. N/A--Not applicable. *Junior term loan facility has a cash interest element and a PIK interest element, which accrues at 6% per year. §Junior Zero coupon bond has PIK interest, which accrues at 9.625% per year. †The amount under these instruments is higher than the current outstanding amount of €5,134 million, as the debt assumed is the debt in the year of default. Legal And Structural Considerations Schaeffler is organized into two decks, an upper deck and a lower deck. The lower deck is the restricted group and comprises the parent company Schaeffler AG and its subsidiaries (Schaeffler group). The main debt at the lower deck comprises: • The above mentioned €2 billion equivalent senior secured notes, issued by Schaeffler Finance B.V. due between 2017 and 2019; and • The €6 billion senior credit facilities, borrowed by Schaeffler AG (the latter is made of the initially €8.0 billion new senior credit facility minus the €2 billion Term Loan A, not utilized and cancelled as a result of the simultaneous raising of the proceeds of the €2 billion equivalent notes). Schaeffler Finance B.V. is a 100%-owned special purpose vehicle established for the only purpose of issuing the notes. The upper deck comprises all the companies above Schaeffler AG (Schaeffler Verwaltungs GmbH, Schaeffler Holding GmbH & Co. KG, and INA Holding Schaeffler GmbH & Co. KG [IHO]; all not rated). The main debt located in the upper deck, together called the junior facilities, comprises: • An approximately €3 billion (current value) term loan at Schaeffler Verwaltungs GmbH (Schaeffler's parent), maturing in June 2017; • An approximately €1.8 billion (current value) zero coupon bond due on April 1, 2018, at Schaeffler Verwaltungs GmbH; and • A €250 million revolving credit facility (RCF) at Schaeffler Holding GmbH & Co. KG (the parent of Schaeffler Verwaltungs), maturing in June 2017. Schaeffler owns in total 49.9% of the shares of Continental AG with 36.1% shares held indirectly by Schaeffler AG and 13.8% held indirectly by Schaeffler Verwaltungs GmbH. The Schaeffler Group is restricted to holding no more than 49.9% of the shares in Continental AG by an investment agreement with Continental. The ownership of shares in excess of 49.9% tendered under the public tender offer in 2008 have been transferred to independent banks (described as the independent third parties in the graph below), which in aggregate own 10.4% of Continental shares. Recovery Report: Schaeffler AG's Recovery Rating Profile An intercreditor agreement between the senior secured noteholders and the lenders of the senior credit facilities establishes that the notes and the credit facilities rank pari passu in both right and order of payment in a hypothetical scenario of enforcement. However, the credit facilities lenders benefit from stronger protection than the noteholders, as described in the paragraph "Documentation/covenants" below. This protection includes, among other things, stronger documentation that features certain, relatively tight maintenance financial covenants, compared to the notes' documentation loose, incurrence-based consolidated coverage ratio. www.standardandpoors.com/ratingsdirect 3 958466 | 300374394
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<strong>Recovery</strong> Report:<br />
<strong>Schaeffler</strong> <strong>AG's</strong> <strong>Recovery</strong> <strong>Rating</strong> <strong>Profile</strong><br />
Overview<br />
• We are providing our recovery analysis on German automotive component and systems and industrial bearings<br />
manufacturer <strong>Schaeffler</strong> AG, the borrower of the senior credit facilities, and <strong>Schaeffler</strong> Finance B.V., the finance<br />
vehicle and issuer of the senior secured notes.<br />
• We used a going-concern approach in our valuation of <strong>Schaeffler</strong> AG, owing to our view of its strong brand name<br />
and leading positions in certain automotive-component and industrial bearings segments.<br />
• Our simulated default scenario assumes a payment default in 2015, due to significant deterioration in operating<br />
performance and reduced free cash flow generation triggered by the group's inability to refinance its syndicated<br />
facility B maturing in January 2015.<br />
• Under our assumptions, we arrive at a stressed enterprise value of about €7 billion, resulting in a recovery rating<br />
of '3' corresponding to meaningful (50%-70%) recovery prospects for the €2 billion equivalent senior secured<br />
notes and €1.4 billion equivalent facility C2.<br />
Table 1<br />
<strong>Schaeffler</strong> AG Credit <strong>Profile</strong><br />
Corporate credit rating B/Positive/--<br />
Estimated gross enterprise value<br />
at default (Mil. €)<br />
6,935<br />
Year of default 2015<br />
Facility/issue<br />
Restricted group<br />
<strong>Schaeffler</strong> AG<br />
Senior secured<br />
Outstanding principal at<br />
default (Mil. €) Issue rating <strong>Recovery</strong> rating<br />
Expected recovery<br />
(%) Maturity<br />
Facility B 3,000 NR NR N/A 2015<br />
Facility C1 600 NR NR N/A 2017<br />
Facility C2 (euro and dollar<br />
tranches)<br />
1,400 B 3 50-70 2017<br />
RCF 1,000 NR NR N/A 2015-2017<br />
<strong>Schaeffler</strong> Finance B.V<br />
7.75% Senior secured euro notes 800 B 3 50-70 2017<br />
7.75% senior secured dollar notes 600 B 3 50-70 2017<br />
8.75% Senior secured euro notes 400 B 3 50-70 2019<br />
8.50% Senior secured dollar notes 500 B 3 50-70 2019<br />
Unrestricted Group<br />
<strong>Schaeffler</strong> Verwaltungs GmbH<br />
Junior term loan facility* c.3700† NR NR N/A 2017<br />
Junior zero coupon bond§ c.2600† NR NR N/A 2018<br />
<strong>Standard</strong> & Poors | <strong>Rating</strong>sDirect on the Global Credit Portal | April 17, 2012 2<br />
958466 | 300374394
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