Moody's Lowers Outlook on Titan Int'l (TWI) to Negative; H114 Operating Performance Weaker than Expected

Moody's Investors Service affirmed the ratings of Titan Int'l (NYSE: TWI) including its B1 Corporate Family Rating ("CFR") and B1-PD Probability of Default Ratings. Concurrently, the rating on the company's senior secured notes due 2020 was affirmed at B1. The company's outlook was changed to negative due to its weaker than expected operating performance during the first half of 2014 and expectation that credit metrics will not improve meaningfully from current levels over the near-term. The company has cited lower demand for its mining tires and larger products in its agricultural segment as the primary factors contributing to the lower than expected operating performance. Titan's speculative grade liquidity rating was affirmed at SGL-2 denoting a good liquidity profile.

The following ratings were affirmed:

Corporate Family Rating, at B1

Probability of Default Rating, at B1-PD

$400 million senior secured notes due 2020, at B1 (LGD-3)

Speculative Grade Liquidity Rating, at SGL-2

Outlook, changed to negative from stable

RATINGS RATIONALE

The change in outlook to negative from stable was based on lower than expected operating results during the cyclical downturn in the company's primary end-markets that, together with acquisition integration related costs, have translated into credit metrics that are currently soft for the rating category. In May 2014, in line with the company's weaker than anticipated operating performance, the company recorded a goodwill and asset impairment charge totaling $34.8 million related to its mining business. Despite Titan's financially conservative profile in the management of its debt structure over recent periods including financing bolt-on acquisitions with cash balances and paying down a meaningful amount of short-term debt associated with the Titan Europe acquisition, credit metrics have weakened significantly in recent periods.

Titan's B1 CFR reflects the company's high leverage, moderate revenue scale versus competitors, highly cyclical nature of its end-markets and integration risk related to its rapid global geographic expansion. Credit metrics have come under pressure due to lower demand in its primary end-markets combined with a product mix that commands lower margins, negative changes in commodity prices as well as acquisition-related costs. However, Moody's continues to believe that the company's credit profile at the B1 rating level can withstand a moderate degree of earnings volatility. The ratings incorporate the expectation that the company will maintain a good liquidity profile during the current cyclical downturn in its end- markets while conservatively managing its capital structure. Of note, the company has taken a number of actions to reduce costs and better align its business with current industry conditions and revenue levels including reducing headcount at some of its main facilities. Although Moody's notes that the larger scale/diversity obtained from the company's wider global footprint is a positive long-term consideration, the near-term challenges associated with integrating these acquisitions is also considered in the ratings.

The company's speculative grade liquidity rating of SGL-2 was also affirmed. The SGL rating continues to be supported by the company's healthy cash balances, expectation of continued annual positive cash flow generation (before capital expenditures) and availability under its undrawn $150 million asset-based credit facility due December 2017. The company does not have ongoing financial maintenance covenants as part of its asset-based facility.

The stable outlook is based on the expectation that the company will maintain good liquidity during the current downturn in its end-markets and that leverage as measured by debt/EBITDA will remain below 5.0 times over the intermediate term.

The ratings could be downgraded if the company's liquidity or operating performance substantially deteriorates and/or the company shifts to a less conservative financial policy including completing meaningful debt-financed acquisitions or initiating share repurchases/dividends such that total debt/EBITDA is expected to be sustained at over 5.0 times or EBITDA/interest at or below 2.0 times.

The ratings could be upgraded if the company demonstrates the ability to effectively integrate recent and planned acquisitions and if Moody's comes to expect that debt/EBITDA will meaningfully improve to below 3.0 times and free cash flow to debt of above 8% through economic cycles.

The principal methodology used in this rating was the Global Heavy Manufacturing Rating Methodology published in November 2009. 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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