Global Automotive Logistics' bank debt plunged to 82 from the mid-90s after the French auto supplier's shareholders sought bankruptcy protection. The filing for bankruptcy a process called procedure de sauvegarde in France constitutes a default under the company's bond indenture, according to a Moody's Investors Service report. Its bonds were trading in the 30-35 context last week.
Moody's downgraded the company's corporate family rating to Caa1 from B3 and the rating on the senior secured notes issued by its financial subsidiary GAL Finance to Caa3 from Caa2. In the report, Moody's says the bankruptcy filing gives GAL time to reschedule and restructure its debt. GAL has approximately E100 million of bank debt - a E60 million term loan due 2008 and a E40 million revolving credit facility due next year - and E100 million of unsecured notes due 2009. Royal Bank of Scotland leads the bank debt. A company spokesman did not return calls.
Paolo Leschiutta, an analyst at Moody's, said the agency estimates the recovery rate on the bonds will be modest because the company's only assets are its contract with car maker Renault. GAL has an exclusive supply contract with Renault in several European countries such as France, Germany and Belgium. The contract is recorded as intangible assets on the company's balance sheet and had a book value of approximately E340 million at the end of 2005. The recovery rate on the company's debt is uncertain because of the intangible nature of the assets, said Leschiutta.
"The company has no significant assets," Leschiutta said. "We assume there will be a 50-60% recovery rate on the bonds. But that is a rough calculation. We are assuming a 90-100% recovery rate on the bank debt. This is based on our assumption of the value of the Renault contract."
GAL's contract with Renault constituted 71% of its revenues in 2005. Leschiutta said the contract has been unprofitable because Renault has moved some of its production outside of France, which has resulted in additional transport costs for GAL. Rising oil prices have also hurt the company, he said. Headquartered in France, GAL provides transportation and distribution services to automotive customers. For the 12 months ended December 2005, the company reported EBITDA of approximately E21.6 million, according to Moody's.