DBRS Confirms Ratings of Magna International Inc. at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Debt rating of Magna International Inc. (Magna or the Company) at A (low) and the Short-Term Debt at R-1 (low). The trend on all ratings remains Stable. The ratings reflect the Company’s solid business risk profile as a global leading Tier 1 auto supplier. Magna’s financial risk profile, despite becoming slightly less conservative in recent years as a function of the Company revising its financial policy, remains consistent with the ratings. DBRS expects Magna’s performance over the near to medium term to remain solid amid industry conditions that, in aggregate (notwithstanding headwinds across certain regional markets), remain rather favourable.

Magna continues to progressively refine its product portfolio to more closely align its competencies with original equipment manufacturer (OEM) needs. In 2015, the Company sold its battery pack business and substantially all of its interiors business (excluding seating), while it also acquired Stadco Automotive Ltd. and the Getrag Group of Companies; (the latter acquisition was formally completed in Q1 2016). Magna is accordingly very well positioned to benefit from several emerging industry trends, including: the ongoing consolidation of global vehicle platforms; the growing prominence of semi-autonomous/active safety technologies; higher penetration rates of alternative powertrains; and the increasing application of multi-material structures, among others. Accordingly, the Company’s sales growth in recent years has readily outpaced that of the overall sector. This pattern is likely to persist over the near to medium term, taking into account Magna’s increasing presence in Asia and improving performance of its European operations. Furthermore, DBRS notes that, through Magna Steyr (complete vehicle assembly), the Company offers a unique proposition to existing OEMs as well as to potential new industry entrants.

Magna’s recent financial performance remains on track as 2015 consolidated sales, excluding foreign currency translation effects, increased by 3.0% relative to the prior year as operating margins remained flat at a solid level of 7.2%. In Q1 2016, both sales and earnings reached new record levels. DBRS expects the Company’s earnings to continue trending positively, reflecting the above-cited industry outlook and Magna’s increasing earnings diversification. Regarding the Company’s financial policy, DBRS notes that Magna has effectively attained its targeted capital structure, which outlines the debt (adjusted for operating leases)-to-EBITDA ratio within a range of 1.0 times (x) to 1.5x. As of March 31, 2016, the Company’s debt-to-EBITDA was 1.4x. Magna’s leverage is likely to remain at similar levels going forward as the Company has publicly committed to deploying excess cash to shareholders in the form of dividends and share repurchases. DBRS notes that such leverage levels and Magna’s other credit metrics are commensurate with the assigned ratings which, incorporating the Stable trend, are expected to remain constant over the near to medium term. While the Company may pursue additional acquisitions on an opportunistic basis, these would not be expected to result in a permanent shift in Magna’s financial policy.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Automotive Supplier Industry (October 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.