NEW YORK, Nov 8 (Reuters) - US auto parts manufacturer Chassix is exploring revisions to a US$320m leveraged loan backing a dividend to shareholders, following investors' lack of interest amid concerns over declining earnings, according to three sources familiar with the matter.
Lead arranger JP Morgan is discussing reducing the size of the loan and the dividend payment and juicing pricing to lure buyers, who are wary of piling debt onto a company that has seen earnings drop since emerging from Chapter 11 bankruptcy protection two years ago.
Chassix's Ebitda, or earnings before interest, taxes, depreciation and amortization, dropped 4.7% in 2016 and is projected to fall a further 14.3% this year, two additional sources said. The company is still experiencing a run-off of business from its restructuring that will impact revenues, which are tethered to a cyclical end market.
“The company exited in 2015, and performance is still declining as some business rolls off,” an investor said. “They seem to have a good book of business, but this can go away if car sales decline, plus price concessions to original equipment manufacturers are always present.”
The deal marks Chassix's debut in the US$939bn leveraged loan market. It is the company's first trip to the capital markets since emerging in July 2015 from a four-month stint in bankruptcy court in part precipitated by capacity constraints at its manufacturing plant in Bristol, Indiana that drove losses.
The company, which supplies chassis and powertrain components to auto manufacturers including General Motors, Ford and FCA, emerged from bankruptcy protection owned by its former bondholders including Cerberus Capital Management and Oaktree Capital Management. Platinum Equity, the private equity firm that owned the company prior to the filing, transferred its equity to the funds as part of the restructuring process.
Chassix did not respond to requests for comment. JP Morgan and spokespersons for Cerberus and Oaktree declined to comment.
Proceeds from the seven-year term loan, as originally proposed, along with balance sheet cash, were earmarked to fund a US$260m cash distribution to the new owners, repay existing debt and cover fees and expenses. The financing includes a US$125m five-year asset-based revolving credit facility that will be undrawn at close. Investors were expected to commit to the original deal by November 2.
The company is considering downsizing the loan to US$200m-US$225m, and the dividend by a similar amount, the three sources said. It may also hike pricing to as much as 550bp over Libor, from the 475bp-500bp range at launch in mid-October, and further discount the offering price to 98, from 99, the sources added. There will likely be other structural changes.
The original deal would have put the company’s debt-to Ebitda at 2.3 times, based on US$138m of projected 2017 adjusted Ebitda, compared to roughly 0.4 times currently, according to two of the sources. With a loan of around US$215m, debt-to-Ebitda would drop to 1.6 times.
Chassix was formed in 2013 through the merger of Diversified Machine Inc and SMW Automotive, LLC.
The company is rated B2/B by Moody’s and Standard & Poor’s, respectively, while the proposed loan is rated B3/B. (Reporting by Andrew Berlin; Editing By Michelle Sierra)