( VSTOV ) (Part 2)
Despite Visteon's impressive improvements and high-profile customer base, neither Thormahlen nor Silver are expecting the company to accelerate at full speed ahead. "Expect them to do well," Thormahlen says of Visteon, post-bankruptcy, "but they will be different. You can't compare them to their past performance;" in unloading a bulk of its assets during bankruptcy reorganization, the company also reduced its diverseness, which translated into less revenue potential.
Over the years, Visteon has shrunk to a company of less than $10 billion a year from nearly $20 billion. In the 12 months ended Sept. 30, it had sales of about $6.7 billion. The company currently has a presence in 26 countries and 26,500 employees.Subsequent to its reorganization, Moody's assigns a B1 corporate family rating to the company with the expectation that Visteon's more modest debt burden following Chapter 11 emergence will be adequately supported by its earnings and cash flow growth. The rating agency has a stable outlook for the company. But the rating also factors in risks such as Visteon's ability to access funds generated by its foreign subsidiaries and joint ventures, efficiently and inexpensively. Standard & Poor's, for its part, has assigned a B+ corporate credit rating on Visteon with stable outlook. With the company currently mainly owned by former creditors, "we believe the company's financial and strategic policies could evolve over time," S&P analysts Robert Schulz and Nancy Messer noted in a recent report. Still, the report notes, "we view Visteon's financial risk profile as aggressive, largely because we assume the company will use cash in 2011 for increased capital spending and cash restructuring. Also, we believe acquisitions or possible future distributions to shareholders could absorb free cash flow and constrain significant debt reduction in the long term." Typically, companies that receive ratings in the range of Aaa to Baa3 are considered to be investment grade, while those that receive assessments in the range of Ba1 to C are considered to be high-yield or non-investment grade or "junk." As Visteon moves forward, post-bankruptcy, Langan from UBS sees a potential M&A combination between Johnson Controls (JCI)and Visteon and Valeo and Visteon. In a report, Langan says that Johnson Controls has investment-grade balance sheet and would be able to finance such a transaction. Visteon's interiors and electronics division would be especially beneficial to Johnson Controls; however, Visteon has rejected its advances in the past. Valeo would find Visteon attractive for its climate control division. Valeo's ability to finance a transaction would in part depend on further rate hikes by credit rating agencies.
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