S&P rates Phinia, loan BB+

S&P said it assigned BB+ ratings to Phinia Inc. and its planned $500 million term loan B. The recovery rating on the loan is 3 indicating meaningful recovery (50%-70%; rounded estimate: 60%) in default. The outlook is stable.

The issuer will be spun off from BorgWarner Inc. into a separate publicly traded company. Phinia will take BorgWarner's fuel systems and aftermarket businesses assets.

Besides the term loan B, Phinia will also be capitalized with a $500 million cash flow revolver, undrawn at close, a $300 million term loan A and an existing $26 million unsecured note with $24 million face value.

“The company has leading market positions as a supplier of fuel systems to original equipment manufacturers (OEMs) as well as a strong aftermarket business. Its largest customer, General Motors Co., only made up 12% of total 2022 revenue, and its top five customers only represented 32% in 2022. We believe this reduces reliance on any single customer, mitigating risk of potential customer losses,” S&P said in a statement.

However, “However, the company's strengths are offset by the smaller scale of its revenue and earnings base relative to other supplier peers. Within fuel systems, the company competes against much larger peers who are better capitalized such as Bosch, Denso, and Hitachi, who all generate total revenues in excess of $40 billion annually,” the agency added.

The outlook reflects a forecast that Phinia will continue with debt to EBITDA of below 1.5x and FOCF to debt of above 25% over the next 12 months as improving automotive volumes help profitability, S&P said.

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