(The following statement was released by the rating agency)
March 01 - Standard & Poor’s Ratings Services said today that its ratings on auto supplier Allison Transmission Inc. (B+/Stable/--) are not immediately affected by the commencement of an IPO by its parent, Allison Transmission Holdings Inc. We do not expect any debt reduction to occur, because all of the shares will be sold by existing stockholders and the company will not receive any proceeds from the offering.
The largest share positions are held by private equity companies The Carlyle Group and Onex Corp.; each owned about 49.8% of Allison’s common stock as of Dec. 31, 2011. We believe the IPO should result in a less-concentrated shareholder base for Allison, and view the potential reduction in its private-equity ownership as a mild positive. We could raise our ratings if Allison’s leverage declines to 4x or lower on a sustained basis. This could occur if Allison were to increase revenues by about 10% from 2011 levels on a sustained rebound of commercial-truck demand, while improving EBITDA margins about 100 to 150 basis points above recent levels of about 33%. Another factor for an upgrade would be our view of the company’s longer-term business and financial strategy after the IPO, including whether the more diverse shareholder base lessened the likelihood of future leveraged distributions.
In our base case for the current rating, we believe adjusted leverage is likely to be sustained at about 5x or less, despite a somewhat sluggish recovery anticipated in its end-markets in 2012. The stable outlooks reflects our view that Allison can generate positive free cash flow of over $300 million in 2012, sustaining recent EBITDA margins, with leverage of about 5x or less, in line with our current assessment of its financial risk profile as “aggressive” (as per our criteria), and its business risk profile as “fair.” For further details, please see our report on Allison Transmission Inc., dated Dec. 15, 2011, in Ratings Direct.