ARC Automotive Group, Inc -- Moody's assigns ratings to ARCAS Intermediate Holdings (Sequa Automotive), CFR at B2

New York, October 22, 2012 -- Moody's Investors Service assigned first time ratings to ARCAS Intermediate Holdings (Sequa Automotive), - Corporate Family Rating at B2; and Probability of Default Rating at B3. In a related action, Moody's assigned B1 ratings to the new $60 million senior secured first lien revolver and $215 million first lien term loan of Sequa Automotive's operating subsidiary -- ARC Automotive Group, Inc. The proceeds from the term loan, along with $125 million of contributed equity from affiliates of The Jordan Company, will be used to fund the purchase of Sequa Corporation's automotive businesses and pay fees and expenses related to the transaction. The rating outlook is stable.

The ratings of Sequa Automotive reflect the company's competitive position in two automotive business segment: i) power outlets, connectivity devices, climate control sensors, power electronic modules, and suspension control sensors; and ii) advanced inflators for driver and passenger-side airbags, as well as inflators for side impact and curtain applications.

The following ratings were assigned:

ARCAS Intermediate Holdings: Corporate Family Rating, B2; Probability of Default, B3 ARC Automotive Group, Inc. (with Casco Automotive Group, Inc. as co-Borrower):

B1 (LGD2, 26%) to the $60 million senior secured revolving credit facility (also available to ARCAS Intermediate Holdings' European subsidiary borrower);

B1 (LGD2, 26%) to the $215 million senior secured term loan facility

RATING RATIONALE

Sequa Automotive's B2 Corporate Family Rating incorporates the company's modest leverage following the acquisition, and longstanding customer relationships in the automotive industry. These competitive strengths are balanced by the company's modest size as an automotive parts supplier, ongoing competitive pressures within air bag inflator and connectivity segments, and continuing pricing pressure.

Following the acquisition by The Jordan Company, Sequa Automotive is expected to have a modest leverage profile with pro forma debt/EBITDA (as adjusted by Moody's) of about 4.0x. Sequa Automotive's position as a longstanding industry supplier of airbag inflators and connectivity products has positioned the company to benefit from the global automotive industry's recovery as their products are on a number of leading automobile platforms. However, Sequa's airbag inflator business competes with a number of much larger companies. Moreover, many of these competitors, who supply entire air bag systems, are also customers of Sequa Automotive. This poses an important area of business risk. Moody's also notes that Sequa's connectivity products serve as gateways to complex audio and infotainment systems. The rating agency believes that as demand for these systems in automobiles increases, there could be greater competitive and margin pressure in Sequa's connectivity operations.

Sequa Automotive's modest revenue base also is a risk factor under the Global Automotive Suppler Methodology. In order to maintain its competitive position, Sequa Automotive has had to improve both technology and lower product pricing (partially due to OEM negotiated price downs). As a result, revenue growth may not keep up with global automotive sales, pressuring the ability to improve margins.

The stable outlook reflects Moody's view that Sequa Automotive's operating performance over the near-term will support the assigned rating and enable it to maintain a good liquidity profile. Despite the industry pressures mentioned above, the company is expected to generate positive free cash flow over the intermediate-term. Moody's will monitor management's usage of free cash flow for debt reduction or shareholder friendly actions.

Sequa Automotive is anticipated to maintain a good liquidity profile over the near-term supported by free cash flow generation and availability under the $60 million revolving credit facility. The company should generate positive free cash over the near term driven by strong profit margins and modest incremental working capital and capital expenditure needs as revenues grow. The proposed revolving credit facility is expected to be unfunded as of the closing of the transaction and remain largely unused over the near-term. Financial covenants for the bank credit facilities are anticipated to include a maximum net total leverage test and a minimum cash interest test. While financial covenant levels have not been determined as of this writing, they are expected to have ample cushion over the near-term. Alternate liquidity is limited as substantially all of the company's domestic assets are expected to secure the credit facilities.

An improvement in Sequa Automotive's rating could occur if the company is able to sustain EBIT/Interest above 3.5x and Debt/EBITDA below 3.0x while demonstrating a financial policy that is focused on debt reduction rather than shareholder returns.

The rating could be lowered if regional demand pressure on automotive production levels results in profit margins deterioration, or EBIT/Interest below 2.0x or Debt/EBITDA over 4.5x. A deteriorating liquidity profile or shareholder distributions that signal a shift to more aggressive financial policies also could lead to a lower rating.

The principal methodology used in rating ARC Automotive Group, Inc. was the Global Automotive Supplier Industry Methodology published in January 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.

Sequa Automotive operates through two wholly owned subsidiaries, Casco Automotive Group, Inc. (Casco) and ARC Automotive Group, Inc. and their affiliated companies. Casco supplies automotive power outlets, connectivity devices, climate control sensors, power electronic modules, and suspension control sensors. ARC supplies the automotive market with advanced inflators for driver and passenger-side airbags, as well as inflators for side impact and curtain applications. Revenues in 2011 were about $350 million.

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