Fitch Affirms Hayes Lemmerz' IDR at 'B'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Issuer Default Ratings (IDRs) and outstanding debt ratings for Hayes Lemmerz International Inc. (HAYZ) and subsidiaries:

Hayes Lemmerz International, Inc.

--IDR at 'B'.

HLI Operating Company, Inc. (HLI Opco)

--IDR at 'B';

--Senior secured revolving credit facility at 'BB/RR1'.

Hayes Lemmerz Finance - Luxembourg S.A. (European Holdco)

--IDR at 'B';

--Senior secured revolving credit facility at 'BB/RR1';

--Senior secured Euro term loan at 'BB/RR1';

--Senior secured Euro synthetic LOC facility at 'BB/RR1';

--Senior unsecured Euro notes at 'B-/RR5'.

The Rating Outlook is Stable. Approximately $646 million of on balance sheet debt is covered by Fitch's ratings.

The ratings reflect HAYZ's leading position in the global wheel market, geographic and customer diversity, significant progress in restructuring operations, good credit metrics for the rating, and solid liquidity position. Fitch's concerns include the impact that extreme commodity cost increases could have on working capital and margins, an expectation of negative free cash flow in the current fiscal year including restructuring costs, some exposure to the weak North American commercial and light vehicle market, and the tightening of a leverage covenant at the beginning of 2009.

The Stable Outlook rests on HAYZ' geographic diversity, which helps to offset the decline of sales in the North American market this year. In 2007, HAYZ generated 80% of its revenues outside of the U.S. After the closure of HAYZ's Gainesville, Georgia aluminum passenger car wheel facility this year, which yields negative EBITDA and cash flow, the company will be even less exposed to the U.S. market and operating results will be favorably affected. Fitch also expects that Commercial truck volume will rebound next year in North America, which should further help results.

While HAYZ has a good history of recovering commodity cost increases, the Outlook could be negatively affected by higher commodity costs which require additional financing for working capital and which could affect margins if the company is unable to achieve full cost recovery. In contrast, HAYZ's Outlook could be positively affected if higher free cash flow were to materialize from consistent operating improvements and increased volumes, leading to more significant debt reduction. HAYZ's senior secured credit facility leverage covenant tightens from 4.0 times (x) to 3.0x at the beginning of 2009, putting some pressure on the company to reduce leverage. HAYZ has no significant debt maturities until 2014, but it could reduce term loan borrowings.

Going forward, HAYZ is expected to benefit from its steel wheel technology, moves to lower cost countries and growth from non-Detroit 3 customers, especially in regions of increasing vehicle demand such as Eastern Europe, India, and Brazil. In 2007 fiscal year Eastern Europe made up a larger percent of HAYZ' sales than the U.S.

The Recovery Ratings (RRs) and notching in the debt structure reflect Fitch's recovery expectations under a scenario in which distressed enterprise value is allocated to the various debt classes. The analysis is based on a going concern scenario rather than liquidation. Fitch estimates that in a distressed scenario, HAYZ' enterprise value could significantly deteriorate and secured debt holders would most likely still receive full recovery. As a result, the senior secured facilities are rated 'RR1' (91% to 100% recovery). The senior unsecured Euro notes are rated 'RR5' (11% to 30%) to reflect the junior position of the senior unsecured debt holders' claim relative to the senior secured debt holders.

Including the cash and marketable securities balance of $106.8 million, total liquidity at the end of HAYZ first quarter on April 30, 2008 was $249 million. At quarter-end, HAYZ had no borrowing under its $125 million secured revolver and $25 million available under its U.S. securitization facility. As of April 30, Fitch calculates that HAYZ debt-to-LTM EBITDA rose modestly to 4.0 times (X), from 3.8x at the end of its fiscal year ending January 30. Fitch's calculated debt-to-EBITDA metric is more conservative than the company's reported debt-to-LTM adjusted EBITDA figure.

HAYZ is the world's largest producer of automotive and commercial highway steel and aluminum wheels, having operations in 13 countries and approximately 8,000 employees. HAYZ is today a wheels-focused company after divestures of its components segment businesses over the last several years. 96% of HAYZ 2007 fiscal year revenue came from global wheel sales and 80% of the company's revenue came from outside the U.S.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.