2ND UPDATE: American Axle: GM To Provide $110 Million Payment, $100 Million Loan
19 August 2009 - 2:01AM
Dow Jones News
American Axle & Manufacturing Holdings Inc. (AXL) will
receive a $110 million payment as well as a large loan from General
Motors Co. (GM) as the parts maker works to avoid bankruptcy.
American Axle said it reached an agreement in principal for GM
to pay $110 million to cover the contracts assumed or terminated
through its bankruptcy in June. The company also said GM will
provide a second-lien term loan of as much as $100 million.
American Axle will have the right to make multiple draws from the
loan through Sept. 20, 2013.
The new financial arrangement provides American Axle with some
much needed liquidity and support from GM, which accounts for more
than 70% of its revenue.
The entire deal hinges on American Axle successfully
renegotiating its loan terms with its creditors. The company has an
Aug. 31 deadline, after its lenders granted it a second waiver
extension on its revolving credit facility. The latest waiver
extension requires the company to maintain a daily minimum
liquidity of $75 million. The second waiver can be terminated if
American Axle fails to meet the minimum liquidity test for four
consecutive business days, the company said in a filing.
The borrowing capacity under the revolver stands at $476.9
million through April 2010 and $369.4 million through December
2011, according to Standard & Poor's LCD unit.
The company initially amended the revolver in November,
extending the maturity of a portion of the facility to December
2011 from April 2010.
Lenders to American Axle, led by JPMorgan Chase and Bank Of
America Merrill Lynch, include Wachovia, BNP Paribas, KeyBank,
SunTrust, Bank of China, HSBC, Commerzbank, U.S. Bank, Comerica
Bank, National City Bank, Bank of Tokyo-Mitsubishi, Bank of Nova
Scotia and Bank of New York Mellon.
Justin Perras, a spokesman for JPMorgan, declined to comment.
Bank Of America Merrill Lynch wasn't immediately able to
comment.
American Axle, based in Detroit, has endured drastic demand
cutbacks as GM and other auto makers reduced production for almost
a year amid the U.S. economic recession. The reduction caused many
parts makers, such as Visteon Corp. (VSTN), to seek Chapter 11.
Shares of American Axle were most recently 93.89% higher at
$5.08 as investors bet that bankruptcy is no longer a threat.
American Axle's 5.25% bonds due 2014 also leapt 15 points on the
news to trade at 70 cents on the dollar, according to one trader.
The 7.875% bonds haven't traded yet Tuesday, the person said.
Meanwhile, the cost of insuring this debt against a default was
quoted at about 29 points upfront, according to Phoenix Partners
Group. That means it costs investors about $2.9 million upfront
plus a $500,000 annual fee to insure $10 million of the bonds for
five years. Although it still indicates a severe level of distress,
that's significantly cheaper than $3.83 million upfront last week
and suggests that investors' confidence in the company's is
returning.
But Dwayne Moyers, portfolio manager at SMH Capital Advisors, is
still cautious on the firm's prospects. While it has given itself
some breathing room, the company still faces an uphill struggle to
turn itself around, he said.
"It isn't out of the woods by any stretch of the imagination. It
has to get its top line growing to really be able to rebuild its
balance sheet," Moyers said. "In a cyclical business that hasn't
yet turned, it going to be hard to grow out of that balance
sheet."
Separately, American Axle also provided a forecast through 2013
saying it expects its sales to double from a range of $1.4 billion
to $1.5 billion in 2009 to about $3 billion by 2013. The
expectation is based on a new vehicle selling rate of 14 million in
2013 in the U.S., compared with between 9.5 million and 10 million
this year.
-By Jeff Bennett; Dow Jones Newswires;
jeff.bennett@dowjones.com; 248-204-5542