DBRS Assigns A (low) Rating with Stable Trend to Magna Debt Issuance

DBRS has today assigned a rating of A (low) with a Stable trend to the 3.625% $750 million ten-year Senior Unsecured Notes (the Notes) issued by Magna International Inc. (Magna or the Company). The Notes will mature on June 15, 2024, and will rank pari passu with all other existing and future senior unsecured obligations. The new issuance and debt levels remain commensurate with the currently assigned ratings. The debt issuance is reflective of the Company’s transition to a new capital structure and is consistent with DBRS’s previous expectations (see press release dated January 21, 2014).

During the first quarter of 2014, Magna filed a short-form base shelf prospectus with the Ontario Securities Commission and a corresponding shelf registration statement with the Securities and Exchange Commission in the United States. The filings provide for the potential offering of up to an aggregate of $2 billion of debentures. The base shelf filings and today’s notes issuance reflect the Company’s commitment to the continued evolution of its capital structure. Magna had previously communicated that it would progressively adopt a more “appropriate” (i.e., less conservative) capital structure that would still enable it to maintain high investment-grade credit ratings.

On January 15, 2014, Magna disclosed details with respect to its evolving capital structure and targeted future debt levels and outlined explicit quantitative targets; specifically, that the Company’s Debt (adjusted for operating leases)-to-EBITDAR ratio would be in the range of 1.0 times to 1.5 times within two years. (Note: As of March 31, 2014, Magna’s DBRS-calculated pro forma adjusted Debt-to-EBITDAR ratio stood at 1.0 times). The prospective increase in debt levels effectively provides Magna with added financial flexibility to pursue its growth objectives or undertake additional shareholder-friendly activities such as dividends and/or share repurchases. During the 12 months ended March 31, 2014, Magna applied approximately $1.1 billion in aggregate for the repurchase of common shares under its normal course issuer bid (NCIB). The Company’s NCIB allows for the repurchase of up to 20 million shares, of which approximately 6.6 million shares have been repurchased to date.

Magna’s earnings performance has been solid following the global economic downturn of 2008-2009. From 2013 through Q1 2014, the Company enjoyed further revenue and earnings growth, with particularly strong increases in North America, Europe and Asia. Despite variances across major regional market segments, noting challenging conditions facing the Company in South America, global conditions for the automotive industry are generally quite favourable. Accordingly, the Company’s recently announced financial outlook for 2014 projects operating margins to be in the mid- to high 6% range amid ongoing increases in sales to the range of $34.9 billion to $36.6 billion.

DBRS notes that the targeted debt levels remain consistent with the currently assigned ratings, with Magna’s short- and long-term ratings remaining unchanged at R-1 (low) and A (low), respectively, with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Automotive Supplier Industry, which can be found on our website under Methodologies.

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