Moody's Cuts Titan Int'l (TWI) to 'B3'; Notes Lower Performance in Primary End-Markets

Moody's Investors Service downgraded the ratings of Titan International, Inc. (NYSE: TWI) ("Titan") including its Corporate Family Rating ("CFR") and Probability of Default Ratings to B3 and B3-PD from B2 and B2-PD, respectively. Concurrently, the rating on the company's senior secured notes due 2020 was downgraded to B3 from B2. The ratings downgrade was driven by lower than expected operating performance in the company's primary end-markets due to lower demand for large tires used in agriculture and mining. In the fourth quarter of 2014, the company recorded a goodwill impairment charge related primarily to its international operations in both its agricultural and earthmoving/construction markets. The company's speculative grade liquidity ("SGL") rating was affirmed at SGL-3 reflecting the expectation that the company will maintain an adequate near-term liquidity profile. The outlook is stable.

The following ratings were downgraded:

Corporate Family Rating, to B3 from B2

Probability of Default Rating, to B3-PD from B2-PD

$400 million senior secured notes due 2020, to B3 (LGD-4) from B2 (LGD-4)

The following ratings were affirmed:

Speculative Grade Liquidity Rating, at SGL-3

Outlook, Stable

RATINGS RATIONALE

Titan's B3 CFR reflects the company's very high leverage, moderate revenue scale versus competitors, highly cyclical nature of its end-markets and costs related to its global geographic expansion. Credit metrics have come under pressure due to lower demand in its agricultural (comprising over half of revenues) and mining end-markets combined with a product mix that commands lower margins, negative changes in raw material input costs and lower agricultural commodity prices, unfavorable exchange rate variances as well as acquisition integration related costs. Moody's believes that the company's credit profile at the B3 rating level can withstand a few quarters of elevated leverage metrics for the rating category. The ratings incorporate the expectation that the company has adequate liquidity to manage through the current cyclical downturn in its end-markets while conservatively managing its capital structure. Of note, the company continues to take actions to reduce costs including meaningful employee headcount reductions and other efforts to better align its business with current industry conditions and revenue levels.

The company's speculative grade liquidity rating was affirmed at SGL-3, reflecting our expectation that the company will maintain an adequate liquidity profile. The cyclical downturn in its end-markets is not expected to improve notably in the near-term and it will take time to revert to more normalized levels. The company's adequate liquidity profile is characterized by cash balances expected to remain at roughly the current $200 million level. Approximately 30% of the company's cash balances were located abroad at December 31, 2014, reflective of its expanded geographic presence. In addition, the company has not drawn under its $150 million asset-based credit facility since its inception and it is available in the event the company needs to draw. It does not have on-going financial maintenance covenants which could limit usage. Of note, availability under the revolver at 2014 year-end stood at $94.2 million due to asset borrowing base levels.

The stable outlook is based on the expectation that the company will maintain an adequate liquidity profile during the current downturn in its end-markets.

The ratings could be downgraded if the company's liquidity profile weakens, business conditions deteriorate further, or if the company were to undertake a debt-funded acquisition or shareholder actions that substantially weaken the credit profile. Credit metrics that would contribute to a downgrade include debt/EBITDA approaching 7.5 times or EBIT/interest sustained below 0.5 times.

The ratings could be upgraded if the company's operating performance stabilizes, it demonstrates the ability to effectively integrate recent and future acquisitions and if Moody's comes to expect that debt/EBITDA will improve to 5.5 times or below and EBIT/interest improves to above 1.5 times and is sustained at those levels.

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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