Dura Auto says new bank financing oversubscribed, upsizes second-lien tranche

By Paul Deckelman

New York, April 28 - Dura Automotive Systems Inc. said Thursday that both tranches of its pending senior secured financing deal have been oversubscribed by would-be lenders eager to get in on the Rochester Hills, Mich.-based automotive components supplier's action.

"The deal has been extremely well received," Dura's chief financial officer, Keith R. Marchiando, told analysts and investors on a conference call following the release of its 2005 first-quarter results.

And in response to that strong demand, the company took the opportunity to increase the size of the pending 2011 second-lien term loan portion of the deal to $150 million from the original $115 million. That brings the total size of the deal to $325 million, up from $290 million. The size of the other piece of the financing - a $175 million asset-based revolving credit facility due 2010 - has not been changed.

Dura expects the deal to close and be fully funded by early next week.

The financing deal, first announced on March 31, is one of the key pieces of Dura's strategy for coping with the current unsettled and largely unfavorable conditions in the domestic auto parts supplier sector, whose health is closely tied to that of the overall U.S. auto industry, which is currently also on shaky ground amid soft sales and rising raw materials costs.

"It is a very difficult environment in which we operate," Dura's president and chief executive officer, Larry Denton, said on the conference call, as North American auto industry conditions "continued to worsen."

In the quarter ended March 31, Dura posted a net loss of $4.8 million (26 cents per diluted share), on revenues of $620 million, versus a year-ago net profit of $9.2 million (48 cents per share), on revenues of $634.6 million. The latest results include a pretax facility consolidation charge of $1.7 million, relating to facility closures in Europe and North America. Dura's adjusted loss from continuing operations for the quarter, which excludes facility consolidation charges, totaled $3.7 million (20 cents per share), versus adjusted income of $10.9 million (57 cents per share) a year earlier.

Faced with the twin whammy of higher raw materials prices and lower sales because of production cutbacks at its carmaker and recreational vehicle maker original equipment manufacturer customers, Dura - which produces seating control systems, engineered assemblies, structural door modules and integrated vehicular glass systems - moved to tighten its corporate belt. It announced a package of cost-reduction measures in mid-March that included a reduction of 400 salaried positions worldwide, a freeze on salaries and wages through the remainder of the year, the elimination of the company's performance-based discretionary contributions to its 401(k) employee retirement plan, and the cancellation of the 2005 management bonus program.

And it moved to refill its depleted coffers by lining up the new financing, via lead managers JP Morgan and Bank of America.

Preparing for a different industry

This comes at what Marchiando called "a challenging time, with a confluence of dynamics we haven't seen before." The new deal, he continued, will let the company "weather the present storm, and be positioned to prosper in the future, under what will soon likely be a structurally different industry."

The new financing replaces the previously existing $175 million revolver - cash-flow based, rather than asset-based, as the new revolver is - as well as the existing $111 million term loan.

On a pro-forma basis that includes the new financing as of the end of the first quarter, Dura will have access to over $300 million of liquidity, versus its end-of-quarter liquidity, not counting the new financing, of $53 million, and well up from the just $13 million of available liquidity as of the end of the 2004 fourth quarter on Dec. 31.

"The new credit facilities will [also] effectively defer our mandatory debt amortization," Marchiando said. With the exception of capital leases, Dura will have no principal due until 2009, when $456 million and €100 million of dollar- and euro-denominated Dura Operating Corp. 9% senior subordinated notes are scheduled to come due on May 1.

The company also has $400 million of outstanding 8 5/8% notes due 2012, among other debt.

Dura's cash balance declined to $112 million at the end of the first quarter, from $192 million at the end of the fourth quarter, in line with company expectations, Marchiando said, due to the timing of certain working capital items, and Dura's voluntary payment of $35 million on its existing term loan. As a result, he said, the company's net debt had increased by $39 million in the quarter.

The CFO said Dura is in full compliance with all of its credit covenants.

Interest expense during the quarter was $25 million, "slightly" more than in the year-earlier period, Marchiando said, reflecting the 160 basis-point rise in Libor over the past 12 months.

Looking ahead, Dura projected revenue for the second quarter to be in the range of $600 million to $650 million, versus $659 million in the same period last year. It said that adjusted EBITDA, which excludes facility consolidation charges, will come in a range of $50 million to $55 million.

For the full year, DURA's automotive industry production planning assumptions are 15.6 million units for North America and 20 million units for Europe. It expects revenue of between $2.4 billion to $2.5 billion, versus $2.5 billion last year, adjusted EBITDA of between $185 million and $195 million, capital spending of around $70 million and $100 million of interest expense. DURA expects net debt to increase by $10 million to $20 million for the year. Marchiando said any net debt calculations would include off-balance-sheet borrowings as well as on-balance sheet items.

Bank covenants match existing bonds

During the question-and-answer period that followed the executives' formal presentation, Marchiando was asked by an analyst whether the new facility allows for carevouts that would give the company a certain amount of additional financial flexibility for things like European factoring.

"The carveouts that we wrote are consistent with the carveouts in our bond indenture," he answered. "This credit agreement is something that we looked at - but we wanted to make sure that we maintained the flexibility, so that we're not any tighter [covenant-wise] than anything that we had out there."

He said that Dura had "a good negotiation" with its lending group, "and we ended up with a very good, flexible package." The company does have availability in Europe of "about $75 million of other credit arrangements," the CFO said.

Asked whether Dura has a receivables base in Europe that would allow it to raise that $75 million, Marchiando replied: "I don't know that we would do it completely through factoring. If you look at the total base, and you look at the debt instruments that would be available to us over there, we certainly believe we have the assets there to come up with $75 [million] if we needed it."

But he characterized this as "a 'nice to have.' We believe the ABL is a 'nice to have.' This is liquidity that's not being used to finance day-to-day operations of the company. This is rainy-day liquidity."

The CFO said that the only maintenance test on the new loan is a debt-incurrence ratio test, based on a fixed charge, should Dura get within "what I believe to be a reasonable level of our total line," although he did not say where that point might be. He also noted that the asset-backed revolver is a borrowing-base instrument, and "if the borrowing base for the U.S. and Canada were to change, than the line could be affected." He said there were no tests of debt-to-EBITDA contained in the covenants.

Asked by another analyst to comment on the likely pricing terms of the new loan package (the revolver is currently being talked at 200 basis points over Libor, while talk on the term loan is for Libor plus 350 bps), Marchiando declined any comment "until we get this thing closed."

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