Accuride boosts liquidity with recent revolver expansion, capital lease deal

By Paul Deckelman

New York, March 1 - Accuride Corp. returned to profitability during the 2011 fourth quarter for the first time in several years, company executives said on Thursday, and also managed to improve its liquidity and lower its leverage ratio.

"This is our first profitable quarter - if you don't take one-time adjustments - since the second quarter of 2008, just prior to the start of the global recession," declared Richard F. Dauch, the company's president and chief executive officer, on a conference call with analysts after the Evansville, Ind.-based maker of aluminum wheels and other commercial vehicle components released its results for the quarter and fiscal year ended last Dec. 31.

Significantly, it was also the first such profitable quarter since the company's Chapter 11 reorganization, which took place between October 2009 and its emergence from bankruptcy with a new capital structure on Feb. 26, 2010.

Dauch said that the company - which began "Fix and Grow," an initiative to address certain operational issues last July - projected at that time that it would take between 12 and 18 months, "and we are right on track with our operating turnaround plan" about nine months into the program.

Company expands revolver

Dauch said on the conference call that "we have improved liquidity significantly during the quarter and have subsequently improved it through the expansion of our ABL facility by $25 million."

He also noted that an Accuride subsidiary had last month entered into a $15 million capital lease agreement for a new drum machine at its plant in Rockford, Ill, and further noted that Accuride had "significantly" improved terms with its suppliers.

Accuride announced last month that the lenders under the company's $75 million asset-backed revolving credit facility due 2014 had agreed to the company's exercise of a $25 million accordion feature on that loan, expanding the total commitment to $100 million.

CFO Gregory A. Risch - whose permanent appointment to the chief financial officer's post he had held on an interim basis since last October was announced during the conference call - said that the company's liquidity had improved sequentially to $99 million at the end of the fourth quarter from $77.9 million at the end of the third quarter.

However, he said liquidity decreased overall from $126.6 million at the end of 2010, "due to a significant increase in capital expenditures as we execute our 'Fix and Grow' strategy."

He said that "initiatives that began during the fourth quarter of 2011 are having a positive liquidity impact on 2012 already," noting that "the [financial] team worked diligently to expand our asset base revolving loan from $75 million to $100 million, and a capital lease of $15 million, and improve our terms with our suppliers.

"Each of these are improving our liquidity, which gives us a further cushion as we make significant investments in our business."

The lease - allowing Accuride's Gunite Corp. subsidiary to lease equipment in order to expand its operations at the Rockford plant - has an effective interest rate over the life of the agreement of about 7%, "so it's an attractive financing for us while also adding to our liquidity," Risch said.

Debt up, leverage ratio down

The company ended the fourth quarter with debt on the books of $323.1 million - most of it the roughly $303 million still-outstanding portion of the $310 million of 9½% first-priority senior secured notes due 2018 which it sold in July 2010. Those bonds priced at 97.288 to yield 10%, with proceeds used to refinance the company's then-existing senior credit facility. Accuride also entered into its current revolver facility around the same time.

Besides the bonds, the end-of-quarter balance sheet showed some $20 million drawn against the revolver.

In the year-earlier period, the company had $302 million of debt, all of it from the bonds, with no revolver borrowings.

The company had $56.9 million of cash in the latest period, down from $78.5 million a year earlier, and its net debt figure stood at $266.2 million, up from $223.6 million a year earlier.

However, due to a major expansion in adjusted EBITDA, to $24.3 million in the latest quarter from $15.1 million a year earlier, its leverage ratio of net debt versus adjusted EBITDA declined to 3.1 times from 3.4 times a year earlier.

Risch, in outlining the company's guidance, said that Accuride expects that the current 2012 first quarter will see "a significant use of cash, as we cover our semi-annual interest payments for our notes in February."

Possible uses of cash?

In response to an analyst's query about potential uses of cash - specifically, whether the company might use any increased free cash flow or any proceeds from the sale of a non-core asset for debt repayment, or for expansion - Dauch said company executives would go over all the options and ask themselves a number of questions, including "does it make sense, from a financial payback standpoint, to go down and pay down some of our debt?" He noted that the company could redeem up to 10% of the bond issue at a price of 103.

Accuride can do this once every 12 months until Aug. 1 of next year, under a special call provision in effect for the first three years after the paper was issued in July 2010. The company can also redeem any quantity of the notes before Aug. 1, 2014 at par plus a premium, and then can redeem any quantity of the notes at any time after that time at specified redemption prices, as outlined in the notes' indenture.

Other possibilities, he said, included spending money to do some consolidations of excess factory footprint - which he said might impact pension spending - "pulling ahead" additional aluminum [wheel-manufacturing] capacity into 2012 versus 2013; or doing a bolt-on acquisition "that makes sense to fill a product portfolio gap, or give us a small footprint in a geographical expansion."

During the fourth quarter, Accuride recorded net sales from continuing operations of $242.5 million, a 38% gain versus $175.7 million a year earlier. Each of the company's four business segments posted double-digit gains.

Net income for the quarter was $4.1 million, versus a $110 million year-ago loss, while adjusted EBITDA was $24.3 million, an increase of $11.9 million, or 96% over the $12.4 million a year earlier.

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