14.11.2012 20:51
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Diversified Machine, Inc. -- Moody's assigns B3 Corporate Family Rating to UC Holdings, Inc. (Diversified Machine)

Approximately $237 million of rated debt affected

New York, November 14, 2012 -- Moody's Investors Service assigned first time ratings to UC Holdings, Inc. - Corporate Family Rating at B3, and Probability of Default Rating at B3. In a related action, Moody's assigned a B3 rating to the new $237 million senior secured term loan. UC Holdings, Inc. is a newly created parent holding company which will comprise the operations of Diversified Machine Inc. (DMI) and Concord International, Inc. (operating as SMW Automotive). The new term loan, along with partial funding under a new $100 million asset based revolving credit facility (unrated), will be used to repay the existing bank debt at Diversified Machine and Concord International. The rating outlook is stable.

DMI and Concord manufacture, cast, machine and assemble fully-engineered chassis and powertrain components and modules for leading automotive OEMs and Tier 1 suppliers. Affiliates of Platinum Equity Advisors, LLC purchased Concord in January 2012. The current transaction integrates the operations of DMI and Concord under the new parent holding company in order take advantage of certain synergistic opportunities that exist between the companies.

The following ratings were assigned:

UC Holdings, Inc.: Corporate Family Rating, B3; Probability of Default, B3. Diversified Machine, Inc. (with Concord International, Inc. and certain other UC Holdings, Inc. subsidiaries as co-borrowers):

B3 (LGD4, 53%) to the $237 million senior secured term loan facility;

The $100 million asset based revolving credit facility is not rated by Moody's.

RATINGS RATIONALE

UC Holdings, Inc.'s B3 Corporate Family Rating (CFR) reflects the ongoing challenges the company faces as it takes actions to correct underperforming operations at one of DMI's facilities, and initiates additional synergistic programs at DMI and Concord to optimize manufacturing footprint, overhead, global purchasing, and in-sourcing of Concord's casting products. These challenges are partially mitigated by stronger operating performance and additional asset coverage the Concord business brings to the combined companies. While on a pro forma basis management approximates Debt/EBITDA at about 3.3x, the pro forma adjustments include certain expected run-rate assumptions and other adjustments which Moody's believes need to be demonstrated in the company's performance over the near-term.

Moody's anticipates that the transaction will result in a stronger competitive position within the automotive casting industry for the combined operations of DMI and Concord. UC Holdings' products are found on leading automotive platforms. While UC Holdings' geographic reach is limited with the vast majority of revenues generated in North America, this region is currently experiencing stronger growth compared to other geographies. Yet, UC Holdings will continue to maintain high customer concentrations with revenues to the North American operations of the Detroit-3, exposing the company to the market share risk of these OEMs.

The stable rating outlook reflects the additional profitability and operational flexibility Concord brings to DMI's operations and potential synergies to be implemented through the combined operations to support stronger profitability.

UC Holdings is expected to have an adequate liquidity profile over the next twelve months supported by the new $100 million asset based revolving credit facility, and anticipated financial covenant headroom under the new term loan facility. Borrowings under the asset based revolver at closing are estimated to be about $25 million, leaving the remaining unfunded commitment of about $75 million available, based on expected borrowing base calculations. The primary financial covenant under revolver will be a springing fixed charge coverage ratio of 1.0x when availability falls below the greater of 10% of commitments or $7.5 million for five consecutive days. The financial covenants under the term loan are expected to include a maximum total leverage ratio and a minimum interest coverage ratio; both are expected to have sufficient covenant cushion over the near-term. Moody's believes UC Holdings will continue to execute actions to correct operating inefficiencies at its DMI operations and execute programs to drive synergies between the DMI and Concord operations. These actions are expected to use cash over the near-term driving higher revolver usage until their operating benefits are realized.

The outlook or rating could improve if UC Holdings successfully demonstrates that the manufacturing issues at certain of DMI facilities have been cured and the implementation of synergy programs result in improving profit margins while generating positive free cash flow. A positive rating action could result if, absent pro forma adjustments, EBIT margin improves above 6% on an LTM basis, debt/EBITDA is sustained below 4x, and EBIT/Interest approaches 2x.

The outlook or rating could be lowered if UC Holdings' cost improvement actions do not demonstrate a return of operating performance where EBIT margins approach 5%, if North American automotive demand deteriorates resulting in EBIT/interest below 1.5x or Debt/EBITDA above 5x, or a deterioration in liquidity.

UC Holdings, Inc. is the parent holding company for the combined operations of Diversified Machine, Inc. (DMI) and Concord International, Inc. DMI and Concord manufacture, cast, machine and assemble fully-engineered chassis and powertrain components and modules for leading automotive OEMs and Tier 1 suppliers. UC Holdings, Inc. is a wholly-owned subsidiary of affiliates of Platinum Equity Advisors, LLC.

The principal methodology used in rating UC Holdings, 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.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Timothy L. Harrod Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael J. Mulvaney MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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