Intermet Corp.’s bank debt plummeted approximately 12 points to the upper 80s after the Troy, Mich.-based auto-parts manufacturer blamed rocketing scrap steel prices for losses. Intermet may now default on its financial covenants and lose access to its revolver, according to a company release. An Intermet spokesman said the company is working with its advisors to develop a comprehensive restructuring plan that will address its current and longer-term debt and equity structure. He declined comment on what it will take for Intermet to get waivers from its lenders.
Both the $120 million "B" loan and the $90 million revolver have traded in the upper 80s levels, said a trader, who noted that a whole host of factors are responsible, but primarily "the scrap steel prices are what is causing the hiccup." If the company can weather this, then prospects should turn, he added. The company announced last week that it expects losses of up to $38 million because of the increased costs. This loss is expected to cause Intermet to be in default on the leverage and interest covenants in its credit agreement at Sept. 30 and the company is seeking a waiver from its lenders. The bank debt is led by Scotia Capital. The revolver is priced at LIBOR plus 3 3/4% and the "B" loan is priced at LIBOR plus 4 1/4%.
Standard & Poor's has lowered its corporate credit and senior secured bank loan ratings on Intermet to CCC from B+ and its senior unsecured debt rating to CCC- from B. The $175 million of 9 3/4% bonds are quoted at 48 by Mark-It Partners/LoanX. "If the company is not granted a waiver and does not receive access to its revolver, the company could enter into bankruptcy proceedings or a financial restructuring," notes S&P.
According to a statement from the company, "Although no agreement has been reached at this time, the agent bank for the lenders has indicated that it is prepared to recommend a waiver of the expected covenant defaults through early December, upon terms to be negotiated, coupled with continued, though limited, access by the company to its revolving loan facility."
According to Bloomberg, other banks on the revolver include Deutsche Bank, Fifth Third Bank and Comerica Bank. Bloomberg also cites lenders on the term loan at the time of signing last January including Callidus Capital Management, American Express Asset Management, Angelo Gordon & Co., The Blackstone Group, Highland Capital Management and Stanfield Capital Management.