Continental S&P upgrades rating by one notch to B+
“Hold” the CONTI bonds. “Neutral” on 5Y CDS at 271 bps
S&P raised Conti’s rating to B+ from B with a positive outlook. The upgrade is a result of the improvement in Conti’s credit metrics and liquidity, following the arrangement of a new bank facility (EUR 6 bn), and the improved credit quality of its parent, Schaeffler GmbH. The positive outlook assigned reflects the agency’s view that Conti will continue to improve its financial risk profile throughout 2011 and beyond. The improvement will be supported by a rebound of global light vehicle production and solid demand for both passenger car and truck tires worldwide. The current B+ rating assigned is underpinned by solid market shares, size, diversity, technological capabilities and ability to generate above industry-average profitability. S&P assesses Conti’s financial risk profile as "highly leveraged" due to the weaker credit quality of the parent, Schaeffler. We concur with S&P’s rating upgrade and opine that Conti’s credit profile has improved with the new refinancing, and further view the stake reduction by Schaeffler as positive.