Automotive Supplier Sector Faces Turbulent Times

Strategic Insights -

The automotive supplier sector is facing significant challenges, including liquidity pressures, debt covenant violations, and rating downgrades. General Motors and Ford Motor Company's ratings being slashed to junk status has had a ripple effect on the sector, with several companies announcing cash flow issues and seeking refinancing deals. Collins & Aikman Corp, a leading automotive supplier, has been particularly affected, with CEO David Stockman resigning and the company facing near-term liquidity challenges.

Key Takeaways:

  • The week after General Motors and Ford Motor Company's ratings were slashed, the automotive supplier sector saw one CEO resignation, two delayed SEC filings, two companies seeking waivers to avoid covenant violations, and a few downgrades.
  • Collins & Aikman Corp, a leading automotive supplier, announced that it is facing significant near-term liquidity challenges and has received an amendment and waiver of its accounts receivable facility.
  • The company's corporate credit and senior debt ratings were cut by Standard & Poor's to CCC- from CCC+, citing the possibility of bankruptcy due to severe liquidity pressures.
  • Moody's Investors Service cut its long-term debt ratings for Ford and Ford Motor Credit Company to one and two notches above speculative grade space, respectively.
  • Visteon Corp and Delphi Corp announced delays in filing their quarterly reports with the SEC, citing review of accounting practices, and are exploring new financing plans.
  • Visteon disclosed that it could be at risk of violating the covenants of its loan agreements due to its strategic and structural changes with Ford.
  • Delphi Corp announced plans to refinance its existing bank debt and provide collateral to lenders, with a financing plan expected to close in June.

Statistics:

  • 1 CEO resignation (David Stockman, Collins & Aikman Corp)
  • 2 delayed SEC filings (Visteon Corp, Delphi Corp)
  • 2 companies seeking waivers to avoid debt covenant violations (Collins & Aikman Corp, Visteon Corp)
  • 3 downgrades (Collins & Aikman Corp, Visteon Corp, Delphi Corp)
  • 1 rating cut by Standard & Poor's (Collins & Aikman Corp)
  • 2 rating cuts by Moody's Investors Service (Ford, Ford Motor Credit Company)
  • $1.5 billion: the amount of Delphi Corp's revolver due 2009 that is being amended and upsized via JPMorgan and Citigroup.

Sources:

  • BLR (5/9/05)
  • Bank Loan Report and SourceMedia, Inc. (5/9/05)