Terex's debt increases; reduction 'not necessarily' top priority

By Aleesia Forni

Columbus, Ohio, Feb. 16 - Terex Corp.'s net debt increased by $734 million over the course of 2011, primarily as a result of the company's acquisition of Demag Cranes AG.

Chief executive officer Ronald DeFeo sees deleveraging the balance sheet by successfully integrating Demag's material handling and port solutions businesses, as well as capturing a "substantial amount" of cash on the upside of the recovering end market, as an "untapped opportunity."

"If I look forward for two to three years, I think this is the huge opportunity, because I believe we're valued more on an enterprise value to EBITDA basis, and we're on a P/E basis," DeFeo said during the company's earnings conference call on Thursday.

"And to the extent that we can reduce the gross debt of $2.3 billion dramatically, I think that moves directly to the equity column."

The company's 8% notes are callable in November of this year, and its 10 7/8% notes are callable in the second quarter of 2013.

However, the company will "not necessarily" be looking first at debt reduction.

The company will need to replace Demag's existing credit facility once the domination agreement becomes effective, as well as the dollars associated with buying out the minority, which will affect the debt structure the company will have, DeFeo said.

"We are less than 3.75x from a net debt leverage standpoint as of the end of 2011, so it gives us a little more flexibility in terms of our debt situation as well," DeFeo added.

The company had liquidity of $1.27 billion at Dec. 31, which comprised of $774.1 million cash and borrowing availability under its revolvers of roughly $496 million.

Terex is a Westport, Conn.-based manufacturer of cranes, aerial platforms and construction and materials processing equipment.

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