Fitch Ratings has cut its credit ratings on parts suppliers Visteon and ArvinMeritor further into junk territory.
Fitch cited the continuing decline in global auto production as the causal factor in deteriorating liquidity for the North America based parts makers.
Fitch downgraded Visteon’s issuer default rating two notches to C, indicating a default is imminent or inevitable. Visteon warned recently that it might violate its debt covenants as it posted a wider fourth-quarter loss.
The rating agency expects Visteon to file for bankruptcy protection or undertake a “coercive” debt exchange to maintain liquidity because it “has virtually no access to external sources of new capital, and existing sources are constricting.” Fitch expects the company to have negative cash flows for at least the next year.
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Fitch noted that ArvinMeritor could violate its financial covenants for the quarter ending June 30 because of deteriorating profits and the probable need for increased drawings on its credit facility.
The issuer default rating on the auto and truck-part supplier was lowered two notches to CCC, or highly speculative. Fitch warned that further downgrades are possible depending on whether the federal government increases its aid to GM and the related impact on industry production. The ratings also could be reduced further if ArvinMeritor’s results remain weak or experiences other liquidity problems.
