Tower Automotive's second-lien loan shot above par after the company filed for bankruptcy last Wednesday and a holder of the debt offered to buy up all the second-lien paper. Not to be outdone, the $424 million first-lien also jumped above par on the strength of a $725 million of debtor-in-possession facility that will take out that debt.
As first reported on LMW's Web site last week, Tower's first-lien traded at 100 1/4-100 3/8, while the second lien was quoted around 102 3/4-103 1/2. Tower's first-lien debt has a spread of LIBOR plus 4 1/4% and comprises a $50 million revolver and a $374 million "B" loan. Before the filing this debt was trading around 99 3/4-100 1/4. The second lien, which is a synthetic letter of credit term loan, is also helped by the fact that it has a spread of LIBOR plus 7% and there is a proposal to increase the coupon a further 250 basis points. This debt is non-callable until May, when it is subject to a 102 premium.
The Novi Mich.-based auto-parts company has been struggling for several months with rising raw material costs, up-front launch costs and lower OEM levels. Also, prior to the filing, liquidity was weak, hindered by the reluctance of second-lien lenders--mostly hedge funds--to agree to an increase in the basket for a proposed accounts receivables securitization from $50 million to $200 million.
"A lot of them in the second-lien are also in the bonds and not everybody's interests are aligned," said a holder of the second-lien paper, on why some lenders were in favor of the increase, but not others. The securitization facility was required to replace declining OEM early pay receivables arrangements. A Tower spokesman said he could not comment on issues with the second-lien lenders. But, he said, "We elected to file for bankruptcy because it offers a long-term and comprehensive solution for the company's debt and liquidity challenges."
The bank deal is led by J.P. Morgan and Morgan Stanley. The bonds comprise $258 million of 12% notes, $150 million of 9 1/4% notes and $258.75 million of 6 3/4% guaranteed trust convertibles. J.P. Morgan is leading the DIP facility.
Tower has joined a slew of auto-parts manufacturers that have filed for bankruptcy. Kelso & Company's Citation Corp. and Intermet Corp. filed last fall (LMW 9/27).
