DBRS Morningstar Changes Trend on Magna International Inc. to Stable from Negative, Confirms at A (low) and R-1 (low)

DBRS Limited (DBRS Morningstar) changed the trends on Magna International Inc.’s (Magna or the Company) Issuer Rating and Senior Debt rating to Stable from Negative and confirmed both ratings at A (low). Concurrently, DBRS Morningstar changed the trend on the Company’s Short-Term Debt rating to Stable from Negative and confirmed the rating at R-1 (low). The rating actions incorporate Magna’s solid business risk assessment (BRA) as a global leading Tier 1 automotive supplier with high-level and diverse technological capabilities that notably include complete vehicle assembly, thereby placing the Company in an excellent position to win business from new automotive entrants. DBRS Morningstar also notes that Magna’s financial risk assessment (FRA) remains commensurate with the assigned ratings, with the Company’s financial profile proving quite resilient to challenges associated with the global progression of the Coronavirus Disease (COVID-19).

Magna’s solid FRA reflects its consistent operating performance amid a conservative financial policy that outlines a targeted debt-to-EBITDA (adjusted for operating leases) ratio in the range of 1.0 times (x) to 1.5x. While the Company’s debt-to-EBITDA exceeded its target as of year-end 2020, this was more than explained by earnings pressure and implemented liquidity actions as a result of the coronavirus pandemic, with Magna being well on track to revert to its targeted debt-to-EBITDA range within 2021. DBRS Morningstar also notes that the Company’s liquidity was robust throughout the pandemic and remains strong, with cash and available credit lines as of March 31, 2021, amounting to $7 billion.

Magna’s 2020 profitability, while weaker year over year, remained sound as the Company’s financial performance benefitted from an automotive recovery in H2 2020 that considerably exceeded DBRS Morningstar’s expectations. While this recovery (notably among original equipment manufacturers (OEMs)) has been undermined this year by the global semiconductor shortage, DBRS Morningstar notes that Magna has been relatively less affected, with the Company remaining able to produce and meet OEM customer schedules. Going forward, automotive industry conditions are estimated to be rather favourable, with sales/production growth projected across each of Magna’s major market regions following last year’s contraction attributable to the pandemic. Additionally, the Company stands to benefit from the progressive electrification of the industry, with Magna attaining materially higher content per vehicle levels in electric vehicles (relative to traditional internal combustion engine models). Finally, DBRS Morningstar notes that Magna remains well positioned in the context of the ongoing consolidation of the supply base given its strong technological abilities and financial profile.

Consistent with the Stable trends on the ratings, DBRS Morningstar deems it unlikely that Magna will be subject to negative rating actions over the near to medium term, referencing the Company’s conservative financial policy amid the above-cited rather favourable industry conditions. Conversely, DBRS Morningstar sees limited potential for positive rating actions over the foreseeable future, noting that the Company’s ratings remain quite dependent on its BRA, which is already at strong levels relative to the automotive supplier industry average.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020; https://www.dbrsmorningstar.com/research/368670), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving the report, contact us at [email protected].

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

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