Adient focuses on liquidity amid Covid-19, will later pay down debt

By Devika Patel

Knoxville, Tenn., May 5 – Adient took steps to increase liquidity last quarter, including draws on its ABL revolver and a sale of five-year notes, and the company believes it has adequate liquidity to navigate the Covid-19 crisis.

Once the crisis ends, the company will use the excess liquidity it has built up to pay down debt.

“Adient executed several actions to increase our financial flexibility,” executive vice president and chief financial officer Jeff Stafeil said on the company’s second quarter ended March 31 earnings conference call on Tuesday.

“First, we took a partial draw on our asset-based revolver of $825 million in March.

“This draw, combined with the remaining undrawn availability of $175 million, provided Adient with about $1.8 billion of liquidity at quarter-end.

“That said, available liquidity associated with Adient’s ABL facility is not static and fluctuates with changes in the underlying business.

“In other words, it declines with a shrinking receivable balance, such as the situation today due to the significant amount of automotive shutdown across the world,” Stafeil said.

The company also issued $600 million of 9% five-year first-lien notes in April.

“Looking ahead and realizing we’d be experiencing a contraction of ABL revolver availability due to the shutdown of our customers, we successfully entered into the debt markets and issued a $600 million five-year senior secured note in April,” Stafeil said.

The company also paid down some bank debt at the end of the quarter.

“After the quarter-end, we were required to pay $137 million of our ABL balance due to the declining AR balance,” Stafeil said.

“In addition, we voluntarily repaid an additional $350 million of the facility at month-end,” Stafeil said.

There is enough liquidity to see the company through the Covid-19 crisis, and the company has reduced its cash burn.

“Based on the current environment, we believe [we have] an adequate level of liquidity to weather the storm, especially when factoring in the steps we’ve taken to reduce our monthly cash burn to about $175 million per month,” Stafeil said.

“Adient’s liquidity is strong and we believe provides ample flexibility,” he said.

Once the crisis is over, the company will use that extra liquidity to pay down some more debt.

“Once the crisis is in the rearview mirror, we look to pay down some debt using excess liquidity,” Stafeil said.

“We will use that excess liquidity to get down to that $500 million to $600 million range.

“We have the ability, obviously, to pay our term loan B, which is a little under $800 million today,” he said.

The company had $120 million of impact from the Covid-19 pandemic, mostly through lower EBITDA, which was $211 million for the quarter.

“Adjusted EBITDA included about a $100 million [of] impact related [to] Covid-19,” Stafeil said.

Cash and cash equivalents were $1.64 billion as of March 31, 2020, compared to $924 million as of Sept. 30, 2019.

Long-term debt was $3,717,000,000 as of March 31, 2020, compared to $3,708,000,000 as of Sept. 30, 2019.

As of March 31, the company had approximately $1.8 billion of liquidity.

On March 26, Adient plc borrowed $825 million under its asset-based revolving credit facility.

On April 20, Adient priced an upsized $600 million issue of five-year first-lien notes (Ba3/B+) at par to yield 9% in a drive-by.

Citigroup Global Markets Inc. was the lead bookrunner. Joint bookrunners were BofA Securities Inc., Credit Agricole CIB and J.P. Morgan Securities LLC.

The issue size increased from $500 million, and the notes priced 12.5 basis points through yield talk in the 9¼% area. Initial talk had the deal coming to yield in the high 9% area.

The notes come with a springing maturity that moves forward to May 15, 2024 if Adient's senior unsecured notes due 2024 have not been refinanced by that date.

In addition to a conventional high-yield call structure there is a special call provision for the first 120 days after the issue date during which the issuer may redeem up to 35% of the notes at 104.5 with the proceeds of any loan received pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The notes were issued via Adient US LLC.

The Plymouth, Mich.-based manufacturer of automotive seating earmarked the proceeds for working capital and general corporate purposes.

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