S&P gives B to Schaeffler notes

Standard & Poor's said it assigned its B issue rating to the proposed €1.2 billion senior secured payment-in-kind toggle notes to be issued by Schaeffler Holding Finance BV, a financing vehicle of Schaeffler AG (BB-/stable/--).

The recovery rating on these notes is 6, indicating an expectation of negligible (0-10%) recovery in the event of a payment default.

At the same time, the agency affirmed its BB- issue ratings on Schaeffler Finance BV's existing senior secured notes and INA Beteiligungsgesellschaft GmbH's proposed senior secured €1.8 billion term loan B. The 3 recovery ratings on these debt instruments are unchanged.

In addition, S&P affirmed its B issue ratings on Schaeffler Finance BV's €500 million senior unsecured notes due 2019 and on Schaeffler Holding Finance BV's junior notes due 2018. The 6 recovery ratings on these instruments remain unchanged, constrained by the notes' structural subordination to the significant senior debt issued under Schaeffler AG.

Schaeffler’s BB- corporate credit rating remains unchanged.

Schaeffler Holding Finance's proposed PIK toggle notes will be denominated in euro and U.S. dollar tranches totaling €1.2 billion. They will be guaranteed by Schaeffler Verwaltungs GmbH and secured by share pledges and pledges over certain intragroup loans and hedging receivables.

Proceeds will be used to refinance existing junior term loans borrowed by Schaeffler Verwaltungs GmbH. S&P highlights that Schaeffler has sought consent from existing noteholders to release security over up to 50% of the 11.8% stake in its larger competitor, German automotive products and services provider Continental AG, held by the parent guarantor.

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