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Exide gets a warning from ratings agency

Wed, 01/16/2013 - 17:36 -- Ruth Williams

Moody’s, the credit rating agency that gave Exide a tough time a decade ago is once again putting the company’s financial performance under the microscope.

Exide Technologies has seen weak operating performance over the last two financial quarters that has resulted in a poor credit rating.

Moody’s Investor Services changed Exide’s rating outlook from stable to negative. The company’s rating is categorised as highly speculative in the categories of Corporate Family and Probability of Default Rating, as well as its liquidity rating.

In an attempt to remedy this, and raise its credit rating back to its previous level, the company has closed battery transportation and recycling facilities in Tennessee, Texas and Pennsylvania. The company hopes the savings on operational costs from closing these facilities will improve earnings for 2013.

These combined actions will bring North American capacity down to demand level and limit the company’s exposure to volatile core costs related to recycling.

The company could be in further trouble if it cannot manage fluctuations in commodity costs; if the global demand for battery products dips; or not being able to offset lower demand with restructuring savings could lower operating performance.

If Exide cannot achieve a sequentially consecutive improvement in operating profits, Moody’s could further downgrade it.

The company can be considered for a stable rating when it can sustain EBIT (total expense from interest payments) over 1.0x; generate positive free cash flow; and maintain an adequate liquidity profile.

The sale of the smelter in Frisco, Texas should gain the company US$37million, which will strengthen the company’s US$74 million in cash on its September 2012 balance sheet.

Exide's ‘highly speculative’ Corporate Family Rating of B3 reflects the company's business focus on markets that enjoy greater stability. The automotive aftermarket replacement battery market represents about 75% of Exide's transportation revenues (44% of total revenues). About half of Exide's revenues are generated in North America where industry reports indicate shipments of both aftermarket and OEM batteries have increased on a year-to-date basis through October 2012.