Dura confident of liquidity, takes "very conservative" tack with extra loan

By Paul Deckelman

New York, April 10 - Dura Automotive Systems Inc. said it has sufficient liquidity and said that its decision to obtain a previously unexpected credit facility was because it was taking a "very conservative" approach to managing its finances.

During a presentation at Morgan Stanley's annual Automotive Conference in New York, Dura's chief financial officer, Keith R. Marchaindo, said that the Rochester Hills, Minn.-based maker of transmission shift levers, door modules, window systems and other component parts has adequate liquidity - especially since it did a $75 million bank facility add-on last month - faces no serious debt maturities before May 2009 when $524 million of 9% notes are slated to come due, and is proceeding on schedule with a global restructuring plan that he and chief executive officer Larry Denton announced in early February.

Denton said the company's financial position had been helped by the $325 million of financing put in place in May of last year, when Dura entered into a $175 million asset-based revolving credit facility due 2010 and a $150 million term loan due 2011. It was further bolstered by the recent $75 million add-on to the latter loan, which he said "was received very well and over-subscribed." Coming on top of the roughly $225 million of liquidity that Dura had at year end, the add-on loan brings the company's unrestricted liquidity to about $300 million.

An analyst pointed out during the question-and-answer portion of the presentation that when Dura outlined its ambitious plan to restructure its global operations, close unprofitable or unneeded facilities and sell three non-core German manufacturing plants during a Feb. 9 conference call, Marchiando said then that the company's liquidity was sufficient, and it did not envision having to return to the capital markets any time soon.

However, things changed quickly, and Dura tapped the markets in early March for the $75 million addition to the existing $150 million term loan.

Marchiando said during Monday's presentation that Dura's statements at the time had been wholly accurate - it did not need any funds other than the $225 million of liquidity it had available in order to fund the restructuring.

Rumblings and strikes

However, he said, between that conference call and the time Dura revisited the market, Dana filed for bankruptcy, on March 3, and "there started to be some rumblings - and we weren't hearing them before - about trade credit," a not unusual phenomenon following a high-profile bankruptcy, as vendors who sell goods and services begin to get nervous about the financial health of companies competing in the same industry as the bankrupt debtor.

"We did not want to get into a situation where trade credit was a problem," he declared. "The key to this thing [is that] the people that have not survived [without filing] are the people who did not have liquidity. We wanted to make sure that we had more than ample liquidity so that if the trade discussion ever came up" - and here he stressed that "it hasn't - but if it did, with $300 million of liquidity, we do not have any issue of walking into any of our customers, or any of our vendors, for that matter, and saying 'do not worry about Dura. This is not an issue. There is no trade credit risk here at all'."

Denton, who also spoke at the Morgan Stanley event, added that with all of the labor unrest going on with bankrupt supplier companies like Tower Automotive Inc. and Delphi, both of whom want to cut costs by shedding burdensome labor contracts in favor of a less costly spending structure, "we don't know what the result is" - whether unionized employees at either of those companies might react by going on strike, thus disrupting the flow of parts to the carmakers, who might, in turn, have to cut or even suspend production and stop buying goods from non-involved bystander companies like Dura.

"You need to protect yourself when you can." He said that Dura wanted to take "a very conservative position" in the face of the sector unrest, "so that has changed since the last [conference] call. I think we did the right action at the right time." He said that he and his CFO are "very pleased with where are from a liquidity standpoint, going forward."

Denton, when asked what precautions the company was taking in the event Delphi was struck by members of the United Auto Workers union and other labor groups, which would, in turn, likely impact production by its carmaker customers - particularly GM - who also buy parts from Dura, replied that "hopefully, there won't be one - but if there is, we believe we'll fare better than average" among the parts makers. If it needed to stop production in such an event, Dura could furlough its employees "with no pay. We don't have a job guarantee program at any of our facilities, so we can minimize the costs that we'd incur."

He said that the company would continue to incur its fixed costs during such a crisis, "but eventually, there would be a catch-up period. Say they're on strike for a week. They'll have to make up these vehicles anyway, so you're going to get that performance [i.e. Dura sales to carmakers having to make up for lost production] in the future.

"Whether they strike or don't strike, I think we're in the best possible situation, versus some other people out there [for whom] it could cause a problem or who have not prepared for that problem by having adequate liquidity."

When asked by an analyst whether Dura was still determined to sell the three non-core German production plants as part of its global restructuring, or whether it might now be looking at other options, Marchiando said "actually, we haven't changed paths at all." While the game plan is to sell the plants, which are non-core operations, the CFO reiterated that "if we don't get what we believe is a fair price for these things, we don't need to sell them."

He said that "we're progressing exactly as we want to." He said that Dura "is contacting people, and people are contacting us. There are a number of confidentiality agreements that have been signed."

There is, he said, "absolutely no change."

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