Moody's assigns Ba3 to Sensata Technologies B.V.'s new $500 million sr unsec notes – Moody's
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New York, August 15, 2022 — Moody’s Investors Service ("Moody’s") assigned a Ba3 rating to Sensata Technologies B.V.’s ("Sensata") planned $500 million senior unsecured notes offering due 2030. All other ratings for Sensata and Sensata Technologies, Inc. (“Technologies”) are unchanged at this time including the company’s Ba2 corporate family rating (CFR), Ba2-PD probability of default rating, Baa3 senior secured, and Ba3 senior unsecured debt rating. The outlook is stable. The company’s speculative grade liquidity rating of SGL-1 is also unchanged.
This new debt at Sensata will be guaranteed similar to the other debt of Sensata and Technologies. Sensata plans to use the proceeds from the notes to redeem, repurchase, or otherwise repay the company’s 4.875% senior notes due 2023 or other existing debt.
Assignments:
..Issuer: Sensata Technologies B.V.
….Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD4)
RATINGS RATIONALE
Sensata’s Ba2 rating reflects the company’s good scale in the specialized and fragmented sensors and controls market and its deep entrenchment in its customer’s products. The company is winning a significant amount of new business from its differentiated product offerings in key megatrend areas for its customers in electrification and insights (providing data insights to transportation and logistics customers using telematics and asset tracking devices). Sensata’s ratings also reflect the company’s exposure to cyclical end markets, the largest being automotive, where many customers continue to experience difficult supply conditions.
Sensata also has a history of leveraging acquisitions and debt-to-LTM EBITDA is high at around 4.5 times at June 30, 2022. Moody’s expects it to improve and approach 4.0 times over the next 12-18 months driven by topline growth of 4% for 2022 that will drive profit dollar growth. Sensata has implemented pricing actions to offset inflationary increases in input costs, but Moody’s continues to expect 2022 profit margin to decline from increasing investment in electrification and insights and to a lesser extent supply chain challenges that are softening volumes. Sensata is expected to have over $350 million of free cash flow in 2022, which also takes into consideration the 2022 initiation of a dividend.
The stable outlook reflects Moody’s expectations that Sensata’s profit dollars will grow and debt-to-EBITDA will approach 4 times by the end of 2023.
Sensata’s SGL-1 speculative liquidity rating is indicative of very good liquidity, which is largely supported by its large cash balance of nearly $1.8 billion at June 30, 2022 (pro forma for $219 million of proceeds from the July 2022 sale of Qinex) and Moody’s expectation for free cash flow of over $350 million in 2022. In addition, substantially all of the company’s $750 million revolving credit facility will be available for borrowing. Moody’s does not expect revolver drawings in the near term due to the company’s large cash balance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The ratings could be upgraded if Sensata can sustain debt-to-EBITDA below 3.0 times, free cash flow to debt above 15%, and EBITA margin in excess of 20%.
The ratings could be downgraded if debt-to-EBITDA is sustained above 4.25 times, free cash flow is below 10%, or EBITDA-to-interest is below 4.5%. In addition, the rating could be downgraded with a shift towards more aggressive financial practices or if there is a material deterioration in liquidity.
The principal methodology used in this rating was Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Sensata Technologies B.V. and Sensata Technologies, Inc., are indirect wholly-owned subsidiaries of Sensata Technologies Holding plc, which is a global manufacturer of sensors and controls products for the automotive, industrial, HVAC and aerospace markets. The company’s products include sensors measuring pressure/force/speed, thermal and magnetic-hydraulic circuit breakers and switches. The company is publicly traded on the NYSE under the symbol ST.
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