Troubled auto-parts maker American Axle & Manufacturing Holdings Inc. (AXL) said Thursday that it has reached a deal with lenders to restructure its debt and also reached a new commercial agreement with automaker General Motors Corp. (MTLQQ.PK), its former parent. The agreements are seen as critical to the future of American Axle and help it stave off bankruptcy. Like its peers, the company has suffered with the decline of the U.S. auto industry and the drop in vehicle sales.
In a filing with the U.S. Securities and Exchange Commission, or SEC, American Axle said the agreements, reached Wednesday, include a $110 million payment from General Motors to resolve costs related to contracts predating that company's Chapter 11 bankruptcy filing in June. GM has agreed to make expedited parts payments through June 2011 in exchange for a 1% discount.
American Axle also received a $100 million loan from GM, its main customer, under which it can make multiple borrowings of no less than $25 million, up to an aggregate amount of $100 million, through September 30, 2013. The loan would not be prepayable until June 30, 2011, unless the cash was generated from American Axle's ordinary course business operations.
Detroit-based American Axle said that in exchange, it issued 4.1 million warrants to GM that will entitle the automaker to buy the same number of American Axle shares at an exercise price of $2.76 each. The company also agreed to issue GM up to 6.9 million more warrants to buy stock at the same exercise price of $2.76, based on the amount it draws on the GM loan. The warrants can be exercised through September 16, 2014. GM has agreed not to buy more than 20% of American Axle's outstanding stock without the company's consent.
To secure the $100 million loan from GM, American Axle agreed to pay a quarterly interest rate of 12% over the London interbank offered rate, or Libor, with a Libor floor of 2%.
American Axle said it has reached a revised credit agreement with its lenders, led by J.P. Morgan Chase & Co. (JPM) and Bank Of America Corp. (BAC). Under the agreement with the lenders, the company will be required to maintain an average daily minimum liquidity of $85 million until June 30, 2010. The company noted that the term loan and revolving credit facility limits its ability to make certain investments, declare or pay dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt obligations.
American Axle had earlier received four extensions of its credit agreements while it completed the discussions with lenders and GM.
Further, the company said it expects to report a consolidated net profit for the third quarter on sales of about $400 million. On average, analysts polled by Thomson Reuters expect the company to report a loss of $0.32 per share for the quarter on revenues of $415.04 million. Analysts' estimates typically exclude special items.
The company expects the third-quarter results to include the favorable impact of net pension and post-retirement benefit curtailment gains. These gains, which will be actuarially determined at the end of the quarter, are currently estimated to be approximately $30 million-$40 million. The company expects to report its financial results for the third quarter on October 30, 2009.
The company said it currently has enough cash to remain in operation and meet its upcoming financial operations. As of September 30, 2009, American Axle expects to have more than $300 million of liquidity including cash, short-term investments and committed borrowing capacity under its U.S. credit facilities, including the loan from GM.
AXL closed Thursday's regular trading session at $7.68, down $0.45 or 5.54% on a volume of 12.36 million shares.
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