American Axle & Manufacturing Holdings Inc said on Thursday it has reached a new commercial agreement with General Motors Co, its main customer, and a revised credit agreement with lenders.
The agreements, reached on Wednesday, include loans from GM to American Axle and warrants to the parts supplier's former parent. American Axle also negotiated amended credit agreements, capping negotiations to keep it out of bankruptcy.
American Axle also said it expects to report a consolidated third-quarter profit on sales of about $400 million.
The (lender) agreement, in combination with the GM agreement, will definitely be beneficial for them, Morningstar analyst David Manger said. It at least puts them through the mid-term, but they still have some major customer and product diversification issues.
Shares of American Axle were down 7 percent at midday on Thursday on the New York Stock Exchange. Earlier in the day, the shares rose as much as 9 percent after the announcement of the agreements in a filing with U.S. securities regulators.
The stock had fallen to as low as 26 cents in March as GM's own problems accelerated ahead of the automaker's bankruptcy, but has rallied sharply since late July on expectations that American Axle would reach a deal with its creditors.
Detroit-based American Axle had received four extensions of its credit agreements while it completed the discussions with lenders and GM, which has at times accounted for three-quarters of the supplier's revenue.
American Axle issued warrants for 4.1 million shares of its stock to GM on Wednesday at an exercise price of $2.76 per share. It also agreed to issue another 6.9 million warrants at the same exercise price based on a second lien term loan the automaker has agreed to give to American Axle.
The warrants can be exercised through Sept. 16, 2014.
GM agreed not to acquire more than 20 percent of American Axle, which was created out of GM plants bought by investors led by Chief Executive Officer Dick Dauch in 1994.
In addition, GM paid American Axle $110 million to resolve costs related to the automaker's bankruptcy and other obligations and agreed to make expedited parts payments through June 2011 in exchange for a 1 percent discount.
GM also agreed to provide a second lien term loan facility of up to $100 million to American Axle that would not be
prepayable before the end of June 2011 unless the cash was generated from ordinary operations.
The terms of GM's financial support had been previously disclosed as American Axle worked on a deal with lenders to keep it out of bankruptcy.
American Axle is a critical supplier to GM's SUV and pickup truck programs. A strike at the parts maker in 2008 led to
widespread shutdowns at GM plants due to parts shortages.
The parts maker said it expects third-quarter results to include the favorable impact from pension and post-retirement
benefit curtailment gains of up to $40 million.
American Axle expects to have more than $300 million of liquidity at the end of September including available cash,
short-term investments and committed borrowing capacity under the U.S. credit facilities.
The company had only $1 million available on its credit facility at the end of June. The revolving credit facility has
allowed the company to borrow up to $476.9 million through April 2010.
The parts maker was required to maintain at least $75 million in cash during the period when it was negotiating with
lenders, but under the negotiated changes that figure was raised to $85 million through next June.
Major lenders to American Axle include JPMorgan Chase & Co, Bank of America Merrill Lynch and Wachovia Corp, owned by Wells Fargo & Co, American Axle shares were down 57 cents or 7 percent at $7.56 on the New York Stock Exchange at midday on Thursday, off an earlier high at $8.88.
(Reporting by David Bailey and Kevin Krolicki, editing by Dave Zimmerman and Matthew Lewis)