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Fitch Downgrades American Axle to 'B+'; Maintains Negative Outlook

CHICAGO-(Business Wire)-September 3, 2008 - Fitch Ratings has downgraded American Axle's (Axle) Issuer Default Rating (IDR) to 'B+' from 'BB-' and senior unsecured debt to 'B+/RR4' from 'BB-'. The rating action incorporates a further reduction in Fitch's short and long-term production forecasts for Axle's primary platform, as well as negative cash flows and a deteriorating balance sheet into 2009 as the company transitions its labor force and domestic manufacturing footprint. Over the longer-term, a healthy new business backlog, an expanding product line, manufacturing excellence and improving diversification by geography and customer position the company to re-establish top-line growth from trough levels and reduce its current reliance on GM truck and large SUV volumes. To enhance liquidity and address the 2010 maturity of its bank agreement, Fitch expects that the company will refinance its existing bank agreement with a secured facility, which will impair the position of unsecured holders and potentially result in further rating actions on the unsecured debt.

Elevated gas prices and weak economic conditions have led to further deterioration in 2008 and 2009 estimates for Axle's primary product platform, the GMT-900, which serves as the basis for GM's pickups and large SUV's. Although Fitch expects that pickup truck sales will eventually rebound from current cyclical trough levels, a healthy portion of the volume decline is considered permanent. GM's recent capacity actions and long-term product planning confirm these expectations.

Axle's balance sheet and its recent labor agreement have positioned the company to weather product volume declines and harsh market conditions that are expected to last at least through 2009. The agreement with the UAW produced sweeping improvements across Axle's fixed cost structure, including capacity reductions and relocations, headcount reductions, lower wage rates, and long-term benefit cost reductions. The agreement also granted additional flexibility in its cost structure through the transition of various fixed costs to variable, enhancing Axle's ability to manage through economic and product cycles.

Despite a sharp decline in the company's cash holdings, liquidity remains adequate to finance the company's near term operating losses and buyout expenditures. In addition to further reductions in its cash holdings (totaling $196 million at June 30, 2008) and employee buyout financing from GM, Fitch expects that Axle will draw on its revolving credit over the near term until the company realizes the full benefits of its cost reduction and manufacturing relocations in the second half of 2009. Fitch projects that Axle could return to positive free cash flow in the second half of 2009, and that Axle will show positive free cash flow in 2010 as a result of the company's cost structure, new business wins and an eventual rebound in the U.S. pickup truck market. Debt could increase by $200 million through 2009 from the current level of $858 million, in the event of further market deterioration and if cost savings are not realized on a timely basis. Over the longer term, debt reduction will be correlated to the growth of the company's international and non-GM business. Fitch remains comfortable with the expected profitability of the company's backlog, although high commodity costs will continue to weigh on margins.

Axle may violate the leverage covenant of its bank agreement in 2008 as a result of the steep decline in 2008 EBITDA. As a result of this and the April 2010 maturity, Fitch expects that Axle will work to shortly negotiate a replacement facility. Despite challenging capital markets, Fitch expects that Axle will be able to obtain a facility of roughly the same size, although on a secured basis. Axle's facility is currently at $600 million, with approximately $572 million available as of June 30. No other maturities occur until 2012. Fitch's recovery analysis indicates that in the event of a secured facility being put in place, the ratings of existing unsecured debt could be downgraded an additional one-to-two notches.

Fitch has taken the following rating actions:

American Axle & Manufacturing Holdings, Inc.

—IDR to 'B+' from 'BB-'.

American Axle & Manufacturing, Inc.

—IDR to 'B+' from 'BB-';

—Senior unsecured credit facility to 'B+/RR4' from 'BB-';

—Senior unsecured term loan to 'B+/RR4' from 'BB-';

—Senior unsecured notes to 'B+/RR4' from 'BB-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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