microvans, which do not require chip installations. However, the increase in volumes will be offset
by spending associated with the GEM platform, which includes equipment renewal to retire old
models and start production of GM's specifically designed emerging markets models. Margins will
be further pressured by increasing foreign exchange (FX) cost inflation, especially for premium
models, whose components are mostly imported. As a result, EBITDA will stay at $200
million–$220 million in 2022, similar to that in 2021. At the same time, we expect debt
accumulation to finance capital investments in 2022, including a $300 million bond issue in 2021
and ECA funding totaling about $160 million, including UAM's cross-default guarantees to sister
company, Powertrain. This will lead to funds from operations (FFO) to debt falling to about 35% in
2022 from about 70% in 2020 and 50%-55% in 2021. The expected volatility of credit metrics is
largely captured in our current significant financial risk profile, but weaker EBITDA or FOCF in
2022 than currently assumed could result in negative rating action.
We expect working capital outflow in 2022 to deliver on prepaid orders will reduce the $330
million of cash accumulated last year, thereby pressuring liquidity in the absence of ECA
funding. The semiconductors shortage led to inventory buildup in 2021, but this was almost fully
offset by prepayments from customers, resulting in working capital inflow of $230 million –$250
million for 2021. Combined with EBITDA generation of $200 million-$220 million and capital
expenditure (capex) of about $310 million, this resulted in positive FOCF and cash of about $330
million by the end of 2021, about half of which is in hard currency. However, we expect that some
orders related to the prepayments will be delivered this year, resulting in a meaningful working
capital outflow of $200 million–$250 million in 2022. Combined with planned investments of about
$80 million in the GEM platform, this will lead to negative FOCF of $100 million-$150 million.
Rating pressure might build if UAM fails to attract the envisaged ECA funding by the end of the
first half of 2022. We also note UAM has revised payables terms with its main supplier, GM Korea,
resulting in the payables period increasing by 60 days and sizeable cash inflow of $233 million in
first-half 2021. We understand this was a temporary measure to fund the company's switch of
letter of credit agreements to international banks from local banks. We expect payables terms to
return to historical levels by the end of the year. Because we assess changes in payables terms as
temporary and UAM's liquidity position as otherwise still adequate, we don't apply a debt
adjustment for these additional funds. However, we will continue monitoring payables terms and
add the funding to debt if we assess the revision of terms to be akin to financing, which will likely
lead us to revise our assessment of UAM's stand-alone credit quality.
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