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Investing.com -- Moody’s (NYSE:MCO) Ratings has announced that the upcoming acquisition of Dowlais Group plc by American Axle & Manufacturing (NYSE:AXL), Inc. will not affect the latter’s B1 corporate family rating. The $3 billion cash and equity deal would, however, impact the ratings of individual debt instruments due to the proposed financing structure. The acquisition, which includes almost $2.2 billion in additional debt, could lead to a negative impact on these ratings due to a significant change in the capital structure and expected impact on loss given default assessments.
The acquisition of Dowlais Group is set to be completed by the end of 2025, and the funding is not anticipated until later this year. As such, Moody’s will continue to monitor developments and adjust ratings accordingly when permanent financing is arranged.
The acquisition of Dowlais Group will nearly double the scale of American Axle, with pro forma revenue expected to exceed $11 billion. This move will also improve both customer and geographic diversification and aid American Axle’s transition to alternative propulsion capabilities. Dowlais is expected to contribute positively to margins in the near term, especially given American Axle’s projected run-rate synergies of at least $300 million over the first three years.
The acquisition funding proposal includes nearly $1.7 billion of senior secured debt, evenly split between a secured term loan B and secured notes, and $500 million of either second lien secured notes or unsecured notes. The senior secured revolving credit facility is also expected to be expanded to accommodate the larger business. The addition of a large amount of senior debt could bring the current Ba1 rating on the company’s senior secured debt closer to the B1 CFR, due to it comprising a majority of the debt capital structure and reducing recovery expectations in the event of default.
American Axle’s strong competitive position in driveline and metal forming products, which skew towards light trucks and SUVs/CUVs, continues to grow as a percentage of global light vehicle production. With the addition of Dowlais, customer and geographic diversification are expected to significantly improve. However, the company’s revenue is reliant on internal combustion engine platforms, and diversification is weaker compared to peers with significant reliance on North America, which comprises over 70% of 2024 revenue.
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