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.

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 U.S. new vehicle selling rate of 14 million in 2013, compared with between 9.5 million and 10 million this year.

-By Jeff Bennett; Dow Jones Newswires; jeff.bennett@dowjones.com; 248-204-5542

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