Tower Automotive Second-Lien Lenders Resist Securitization Plan

Tower Automotive is struggling to reach an agreement with second-lien lenders to amend its senior secured credit agreement. The auto-parts maker had already petitioned lenders to increase the basket for a proposed accounts receivables securitization from $50 million to $200 million to cover a liquidity shortfall, but it withdrew the amendment after 50% of the second-lien lenders opposed it as written. "Some lenders are resisting the expanded securitization plan," stated Lisa Matalon, v.p. and senior credit officer at Moody's Investors Service.

Tower is currently restructuring the agreement in hopes of making available the necessary liquidity, but it could not be determined what changes are in the works.

"Tower needs to replace the liquidity being lost due to the termination of Original Equipment Manufacturers (OEM) fast pay programs with off-balance sheet accounts receivables securitizations or other liquidity vehicles," said Matalon. Due to new accounting guidelines, Ford Motors, DaimlerChrysler and General Motors will terminate fast pay accounts receivable discounting programs with Tower. Combined, these offer Tower $140 million in liquidity. The securitization will enable the company to refinance the $140 million of OEM early pay arrangements that are being discontinued and return trade payable turnover days to contractual levels.

Tower currently has a $50 million revolver and $375 million "B" loan that are first-lien debt. It also has a $155 million second-lien synthetic letter term loan facility. Questions to Kathleen Ligocki, president and ceo, were referred to a spokeswoman, who did not return calls.

The co-lead arrangers for the credit facility that was arranged last May are syndication agent J.P. Morgan and administrative agent Morgan Stanley. Standard Federal Bank is the collateral and documentation agent, and Comerica Bank and GE Capital are lenders on the credit agreement. The revolver and first-lien loan are both priced at LIBOR plus 4 1/4%. The second-lien loan is priced at LIBOR plus 7% and is currently quoted between 100 1/2-101 1/2. Spokespeople for the two leads did not return calls. Officials at the banks either declined comment or did not return calls. The identities of the second-lien lenders could not be ascertained.

Moody's has placed Tower's debt ratings on review for downgrade due to the company's increasingly constrained liquidity, insufficient cash interest coverage by operating earnings and rising leverage. Despite financing problems though, Tower has been investing in its future and is beginning to see a return on its investment in Europe and should see better results in 2005, Matalon said. "[Tower] incurred significant launch costs in 2003 and 2004 for new business that will more fully launch and generate positive cash flows in 2005," she noted.