DBRS Morningstar Places Magna International Inc. Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) has placed the ratings of Magna International Inc. (Magna or the Company) Under Review with Negative Implications. The rating action follows the rapid and global escalation of the Coronavirus Disease (COVID-19). Further to DBRS Morningstar’s commentary “The Impact of the Coronavirus on Automotive Manufacturers” dated March 12, 2020, and subsequent press release dated March 27, 2020, that placed all its rated automotive issuers Under Review with Negative Implications, DBRS Morningstar notes that the concurrent widespread closures of automotive plants in North America and Europe (in addition to several other global jurisdictions with the notable exception of China, where production activity has resumed, albeit at lower levels) have in turn placed significant negative pressures on the automotive supply base.

In line with the above-cited original equipment manufacturer (OEM) plant closures, Magna has consequently reduced or suspended operations across many of its facilities. In addition, certain facilities have also been closed in line with government-ordered restrictions. Moreover, following plant closures of an initial duration of one to two weeks, DBRS Morningstar notes that most OEMs have subsequently indicated that such closures will extend through April or early May. Even if widespread production were to recommence at that time, DBRS Morningstar notes that this would likely be at significantly lower levels relative to recent historical norms given considerably weaker anticipated demand as a function of the resulting macroeconomic shocks and markedly lower consumer sentiment. The uncertainty attributable to coronavirus has understandably caused Magna to withdraw its outlook for 2020.

Notwithstanding the Under Review – Negative status assigned to the ratings, DBRS Morningstar notes that Magna is well positioned to withstand the adverse effects of the coronavirus outbreak relative to its supply base peers. In line with the Company’s consistently solid operating performance and conservative financial policy, Magna’s liquidity position is strong, amounting to approximately $4 billion (consisting of $1 billion in cash balances and $3 billion in available committed credit lines) as at February 29, 2020. Consistent with its peers across the automotive manufacturing and supply base, the Company is implementing a variety of countermeasures including (among others) cutbacks in spending and the suspension of share repurchase activities. Additionally, the Company’s flexibility with respect to its labour force is considerable, with Magna only having a very limited number of unionized facilities in North America.

DBRS Morningstar expects to resolve the Under Review – Negative status fairly promptly. However, reflecting the fluidity and ongoing uncertainty associated with the coronavirus outbreak, DBRS Morningstar cannot preclude the possibility of subsequent rating actions in the event of a protracted pandemic that would effectively cause a prolonged market disruption across several jurisdictions.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships, which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 under Related Documents or by contacting us at [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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